Car Manufacturing and Business Ethics in Japan

Introduction

The concept of corporate social responsibility (CSR) may be adopted in different places because of different reasons. It emerged in the European nations towards the end of the 1990s. Its main objective was to resolve social problems such as unemployment, especially amongst young people in a bid to enhance social stability. Authorities realized that it was impossible to solve unemployment matters through organizational philanthropic activities. Thus, they requested different organizations to voluntarily be involved in activities that could ensure social stability. In Europe that forms the origin of CSR originated, such a call suggests that organizations voluntarily enhance social stability through CSR without any legal obligation.

In the Japanese context, CSR emerged in a bid to ensure that organizations function as excellent corporate nationals. Indeed, CSR is a voluntary activity that objects to ensure good corporate governance. Corporate governance involves all aspects of organizational control and management of interests that the organizations serve. Some of the particular relevant areas of corporate governance entail compensation and remuneration of organizations’ board of directors (Clarke and Marie 25). Corporate governance also addresses issues that relate to economics, conventions, and tenure systems (Denis and McConnell 14). These concerns give rise to the adoption of the concept of CSR in Japanese car manufacturing organizations due to the increasing incidents of recalling defective automobiles. Another important issue entails environmental protection from pollution by automobile manufacturing companies’ products. Thus, there is concern for sustainability of the Monouku (manufacturing). Other important themes of CSR in the Japanese car manufacturers include product safety, safety in workplaces, accounting audits, corporate citizenship, and risk management. The Toyota Company exemplifies one of the car manufacturing organizations in Japan, which have established corporate governance (CG) as a strategy for ensuring sustainability through CSR. In 2005, it developed its sustainable development program. With this case in mind and other cases of Japanese automobile manufacturing organizations, this paper discusses Corporate Social Responsibility issues in Japan and the possible challenges or opportunities that Japan is facing in the CG/CSR area.

Corporate Social Responsibility Issues

Environmental and product safety is a major theme among CSR approaches that the Japanese car manufacturers have adopted. The Toyota Company stated its CSR policy in 2005. Toyota Company says, “In the main line of our business, automobile manufacturing, we develop and introduce environmentally friendly vehicles in addition to mechanisms for active and passive safety” (par.2). The company also invests in biotechnology and renewable energy and in afforestation programs. These activities relate to global calls for organizations to enhance environmental sustainability to reduce the implications of global warming on environmental biodiversity (Norman 247; Masdoor 485). The automobile industry amplifies the problem of global warming through the release of greenhouse gasses into the atmosphere. It is in this concern that the Toyota Company aims at ensuring employees and other stakeholders’ commitment to its CSR policy. Other companies such as Honda, Mazda, Mitsubishi, and Nissan also have organized their CSR activities around the need to ensure environmental sustainability through the production of greener and safer cars.

The efforts by Japanese car manufacturers to enhance environmental sustainability through CSR receive scholarly support as having the capacity to ensure sustainable development. For example, Dincer (33) asserts that environmental concerns have a connection with sustainable development. Indeed, all activities, which lead to environmental degradation, are unsustainable. Woodcock asserts that sustainability entails “meeting the needs of the present generation without compromising the ability of future generations to meet their own needs” (1079). The benefits of investing in environmentally sustainable program through CSR are incredible. Woodcock (1080) posits that consumers willingly pay about 10% premiums on products that are manufactured in an environmentally friendly manner. Therefore, CSR protects and improves the image of an organization.

In the contemporary corporation settings, stakeholders are classified either as external or internal. The “main external stakeholder groups are shareholders, debt holders, trade creditors, suppliers, customers, and communities that witness the corporation’s activities” (Erturk et al. 677). Internal stakeholders encompass the executive board of directors and other organizational human resources. Within the sphere of corporate governance concerns, an endeavor is made to ensure that the organizations are directed and controlled with utmost transparency, professionalism, and responsibly for the purposes of safeguarding the eminently valid interests of all stakeholders. An importance interest is the increment of confidence among investors in the capital markets and shareholders (Bebchuck 901). The structure of company ownership influences the level of transparency, which is the main reason why regulations and ethical values of corporate governance are developed within a nation, including Japan.

One of the major issues that are affecting corporate governance in the Japanese carmakers is shaping the corporate management structure to encourage more transparency from the increasing external shareholders. The 1997 Japanese banking system crisis gave rise to a public debate on policies for improving corporate governance. This disaster led to the amendment of the Company’s Act in 2002 by introducing the ‘companies within board’ phrase in the structure of corporate management. The goal was to ensure more transparency in businesses. A major debate since 2011 has been on the advantages and disadvantages of the amendment. Under the strategy of the Japanese government revitalization, corporate governance is an essential component. A major focus has been on the development of governance codes. Unfortunately, decisions have not yet been arrived at on the necessary regulations to enhance corporate governance and/or ensure that organizations adopt the best CSR practices in the automobile industry.

A major policy that may influence corporate governance approaches for car manufacturers in Japan is the stewardship policy. The policy was published for open perusal in February 2014. It aims at enhancing the oversight role of shareholders as the owners of corporations, including car-manufacturing companies. Principles 1 and 7 require all investors to establish clear and focused investment policy (Hideaki par.6). Its implications have already been felt since institutional investors now disclose their voting policies and their records to shareholders. Japan has legal frameworks for ensuring the protection of end users from defective products. Upon the proof of suffering damage because of using a given product, manufactures are liable for compensating consumers. They are also required to make recalls after any detection of flaws in the already sold vehicles in an effort to replace them with new flawless vehicles.

CSR calls for the taking of responsibility of merchandise by ensuring that consumers are protected from defective products. Indeed, the key principle of social corporate responsibility is pegged on the idea that organizations have philanthropic, ethical, and moral responsibilities to play in addition to providing return to investors. Stakeholders’ feedback is one way of approaching various CSR issues (Ferdows and Meyer 168). Such partners include all groups and specific individuals who either benefit, or even are harmed by decisions that an organization makes. For Japanese car manufacturers, stakeholders include customers, employees, environment, and the community. Issues that influence customers also affect the community. Customers are part of the community in which the cars are used. Therefore, while defining product liability issues and the degree of corporate responsibility for an organization, customers are very important since they also help in building the brand name of a given organization.

Customers are the chief stakeholders who keep Japanese carmakers in business. Apart from ensuring their satisfaction with the products that the companies offer, carmakers have other ethical and moral obligations towards them. Customers are important since the degree to which the reputation of an organization is maintained depends on their perceptions about the way the companies treat them. Treating customers with courtesy ensures better reputation of the name of the business and hence more sales, which translate into more returns on investment to the shareholders. Organizational management obligation is to ensure that the business operates on a long-term basis (Garriga and Mele 52). Customers are the main tools for ensuring the realization of this obligation. However, a major issue that Japanese carmakers face is how to retain first-time customers and/or make them faithful subsequent buyers through the adoption of CRS principles.

In an attempt to address the above issue, companies such as Nissan and Toyota have endeavored to not only treat customers fairly but also offer products and services of high quality at fair prices. They are also concerned with the utility of their products in the global markets in a bid to ensure accountability, which is a phenomenal issue in corporate governance. For example, in the bid to exercise CSR and/or abide by the principles of corporate governance by avoiding the cost of defective products, the Toyota Company recalls vehicles that are discovered to have defects. In 2010, the company ordered the return of Lexus cars, trucks, and scion models from 2005 to 2010. These cars had problems with their breaking frameworks and gear pedals.

Toyota remedied all the returned cars without charging the persons who had bought them. In 2012, Toyota accepted settling a class-action suit for payment of damages that amounted to $1.1billion. This case evidences that manufacturing organizations are liable for making or assembling products using defective parts without discovering such defects. In any event, they need to take full accountability of products that are distributed to customers. This assertion is perhaps well supported by the case of Saylor v. Toyota Motor Sales, USA, Inc. The case demonstrated how retailers have to take extra care while offering products in the market place. Thus, it follows that manufacturers owe a duty of care to people who buy their products, family members to the shoppers, spectators, people who rent the products, and/or individuals who may even hold a product for a buyer. All these people constitute the community, which is an essential stakeholder in CSR discourses.

Japanese automakers face issues of sustainable supply chains. The issues entail overseeing the movement of goods and services, finances, and information from the point of production to wholesalers and then to the consumers. They also face challenges in terms of coordinating and integrating the flow between other organizations and/or amongst themselves (Ketchen and Hult 573). Effective supply chain of an organization ensures that products and services are availed just whenever they are required in manner that will ensure that the increasing number of products that need to be availed in the market is sustainable (Bakshi and Fiksel 1350). However, effective supply chain management is problematic, especially when it is deployed as a measure of the extent of an organization’s commitment to CSR policies that involve the supply of flawless products to communities. Automotive manufacturers source materials and sub-components from different suppliers who have already guaranteed their safety to the user. Managing logistics networks is sometimes problematic as evidenced by the case of Nissan and Toyota.

In 2011, Toyota, Honda, Mazda, and Nissan announced a return of 3.4 million units that had been supplied around the globe (SynTao par.1). The four corporations announced that the cars suffered from defective airbags, which had the risk of catching fire and/or injuring people who used their cars. Takata, a world-renowned manufacturer of seat belts and airbags, manufactured and supplied the airbags. Although the recalls are indication of adopting the principles of corporate governance, they present major challenges on effective management of supply chains as a strategy for effective CSR. Unlike the case of the other three corporations, Toyota experiences serious challenges. For instance, in October 2011, it had already called back 7 million units to repair defective power window buttons (SynTao par.3). This observation implies that relying on global suppliers to provide already finished parts to Japanese automakers presents serious corporate governance issues with respect to sustainable supply chain management.

Possible Challenges or Opportunities that Japan is facing in its CG/CSR Areas

Japanese automakers have opportunities to improve their corporate governance by establishing new commitments to reducing hazards that are associated with their products. For example, reporting on various chemical issues can help to improve the corporations’ stand on CSR/CG through increased organizational sustainability. Indeed, the US and the UK are now recording an increased number of business establishments that regard hazardous substances as posing a major business risk. Consequently, as part of their CSR, they constantly report on chemical substances in their products. Japanese automakers can benchmark from the EU automakers approaches to CG.

Big automakers in the EU demonstrate their CSR commitments by reducing chemical substances in their vehicles when they issue their annual financial statements. Particular focus is placed on chemical management in compliance with various legislations that bind the EU member states on the allowable limits of substances. Upon benchmarking from the EU, Japan has an opportunity for developing legislations such as ELVs and REACH (Chemical Watch par.1), which help to regulate chemical substances in all automobiles from Japanese companies. However, this observation does not mean that Toyota and other Japanese incorporated organizations do not comply with various CG principles in their markets. While some of them are garnering data on the utilization of major substances that are of great concern in their compliance with IMDS and SVHCs, others such as Toyota have now established internal mechanisms for reporting on different substances in their CSR reports (Chemical Watch par.3). Mitsubishi is also emulating Toyota. It intends to roll out its substance use while reporting in all global business areas.

Amid the above efforts, some companies have experienced challenges in CG/CSR areas. For example, Nissan experiences conflicts of minerals (Chemical Watch par.3). The company’s report on sustainability in 2014 indicated that it carried investigation into its utilization of minerals in the US, Europe, and Japan. It called upon other suppliers to follow the same guidelines as part of its CG. An emerging question is, ‘how could it have followed this path, yet it is not covered by requirements on mineral disclosures in some jurisdictions such as in the US?’ However, all Japanese automakers have opportunities in CG/CSR areas to reduce their VOCs (volatile organic compounds) (Chemical Watch par.3). Such chemicals include formaldehyde and Xylene. They form constituent rudiments of cottage materials such as adhesives and plastics. Some companies have already identified this opportunity. For example, Honda has designed cars with plastic materials, which have not been painted, especially on cabin door handles in the effort to lower its VOCs. Isuzu’s major quality initiative entails reducing the number of components that have large VOCs concentrations.

Volvo Company, a non-Japanese incorporated automaker, provides an important opportunity for Japanese carmakers in the CSR area. The company has expanded the scope of automobile safety standards to include air circulating inside the cabin areas (Chemical Watch par.4). It has also developed strategies for reducing potential allergenic substances that emanate from the interior of its vehicles. The company also conducts quality tests for potential nickel linkages on its car handles and keys. While all these efforts are possible for Japanese automakers that focus on manufacturing vehicles for mass consumption, challenges are anticipated. For example, Honda aims at producing PVC-free car interiors. However, quality barriers and high costs pose major impediments.

Conclusion

A dominant issue in the contemporary corporate governance debate in Japan is the effect of the systems of corporate governance on economic efficiency. In this end, immense emphasis is deployed on the concerns of shareholder welfare within frameworks of the established regulatory policies as institutional ownership continues to characterize Japanese corporations. The organizations have a responsibility to function as good business citizens by ensuring sustainability of their supply chains while at the same time protecting the interest of their shareholders by putting in place mechanisms for enhancing corporate governance. An organization can also protect shareholders from losing their investments by ensuring that risks that lead to a reduction of competitive advantage are proactively mitigated. For the Japanese automakers, these strategies may include mitigating challenges, which may give rise to CSR or CG issues. They also include checking safety levels of their vehicles.

Technology is important to promote environmental sustainability, which forms a major concern of CSR. Adopting technology can help to minimize greenhouse gas emissions. In a bid to show a responsibility towards customers, Japanese automakers recalled any defective products. However, there is the need to expand the scope of CSR and CG to include a comprehensive reporting on VOCs. Japan also needs to develop comprehensive laws on corporate governance to enhance compliance with the need to protect the interest of their shareholders.

Through CSR, corporate governance can further help to position the Japanese automakers in the line of companies that supply quality products that meet the needs of not only the buyer but also the communities. However, procedures such as renewal and reporting on issues that may create a negative image such as failure to compile comprehensive reports of chemical use in the products are necessary to ensure sustainability of their products. An important concern should focus on sustainable supply chains to eliminate defects that are traceable from outsourced the suppliers of some vehicle components such as seatbelts and airbags.

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