Opinion: How effective is traditional risk management? Ask Mitsubishi

The Japanese car company has gotten off to a reasonable start in its crisis management around its fake data scandal, but there's a long way to go and an all-too-familiar scenario playing out in terms of PR and reputation, says Charles Lankester, senior vice president for reputation management at Ruder Finn Asia.

Charles Lankester
Charles Lankester

Another day, another automotive fake test scandal. The latest news from Mitsubishi Motors? Japanese officials have raided their offices in Okazaki following the corporation’s recent announcement that it had falsified fuel economy data.

The BBC quoted a Japanese government spokesman stating said they were treating it as an "extremely serious case" and that it had "ordered the company to submit a full report".

The potential cost to the company? Quoted in Reuters, JP Morgan estimates more than US$450 million, including "payments to consumers, the costs of replacing parts and compensation to Nissan". Ouch.

At least Mitsubishi management has the benefit of reviewing the Volkswagen emission crisis playbook in case they need inspiration. So far, their response is basically on track.

Mitsubishi president Tetsuro Aikawa has bowed in apology in front of the media in Tokyo, he dutifully apologized and stated his intent to "resolve the problem" and "prevent it from happening again".

He added "it could be quite damaging", which looks like being quite an understatement. Aside from the financial costs, Mitsubishi stock was suspended, due to the volume of sell orders placed, following a whopping US$1.5 billion collapse in value, or about 20 percent of market capitalisation, by Thursday 21 April.

As always, getting in front of the story will now be vital and it looks as if Mitsubishi is off to an OK start. I now predict the usual, depressing ‘crisis ballet’ and associated corporate choreography will follow.

Act 1) Full enquiry to take place.

Act 2) Senior resignations.

Act 3) Memos showing the problem was visible months or years before.

Act 4) A couple of junior- or mid-managers in an obscure technical division will ultimately take the rap.

Curtains down, house lights up, show’s over. Until the next time.

So, any lessons for other companies so far?

First, large corporations are often intensely reluctant to think about anything difficult. Until they are overwhelmed. In fairness, who can blame them? Preferring to deal with nice v nasty is core to human behaviour.

Closely associated is the corporate paradox that no-one has a dollar to plan for a problem, but everyone has a hundred dollars to fix one.

Second, it is smart business to ask tough questions and challenge executives with controversial scenarios before CNN is camped outside your head office. But smart seems to be the exception, not the rule.

I’d argue this is primarily down to the insipid, illusory veil of "enterprise risk management" (ERM). A gigantic box-ticking exercise, it gives executives an entirely false comfort that all is well. Until it isn’t. (Ask VW and Mitsubishi how well their ERM worked out for them.)

These types of "deliberate deception" corporate scandals are the reputational equivalent of a Hellfire missile strike. The results can be catastrophic with long-term consequences well after the camera lights are turned off. Example: Volkswagen’s share price before the emissions scandal hit a year ago was US$285. Now it is around US$135.

The lights will be on very late at Mitsubishi’s HQ for the next few weeks and months.

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