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Toyota Illustrates Problems with Groupthink Governance

Toyota has been slow in ordering recalls and inaccurate in assessing its problems. What has resulted is one of the greatest public relations nightmares in decades. The car maker and franchisor's problems sharply illustrate the failings of Japanese groupthink in corporate governance.

Toyota’s problems are its alone, but they highlight broader failings in Japanese corporate governance that make large companies particularly vulnerable to mishandling a crisis in this way. Such firms typically have a rigid system of seniority and hierarchy in which people are reluctant to pass bad news up the chain, thus keeping information from those who need to hear it in a misguided effort to protect them from losing face [being esteemed as not a team player can cost opportunity for promotion]. In many firms, including Toyota, family ties make challenging the boss all but impossible. Any attempt to short-circuit the hierarchy is deemed an act of disloyalty and a violation of the traditional consensual corporate culture. Groupthink becomes entrenched because there is so little mobility between companies: hiring from outside is thought to disrupt a firm’s internal harmony, and an executive willing to move will be stained as a disloyal “job-hopper”. This further hinders firms’ ability to take bold, decisive action. The preference for harmony crowds out alternative viewpoints.

The lack of an outside perspective is particularly striking in the case of Toyota’s board. It is composed of 29 Japanese men—all of them Toyota insiders, none of them independent. - The Economist

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