Introduction
Business ethics is much related to the manner in which companies conduct their operations and transactions. It is a function of good behaviour and right beliefs among individuals. Globally, the significance of business ethics is now being realized as scandalous corporation experience the loss and pain of engaging in unethical behaviours. There are many cases of unethical business behaviours which have come back to haunt reputable companies across the world. People who have moral awareness and are normal as well as law-abiding can engage in acts of corruption when they have decision bias. Such people normally try to give justification for the past as well as future corrupt actions to others and themselves. In this discussion, focus is put on the Kobe Steel Scandal, which is an example of the way corrupt business activities have become costly to organizations. Understandably, Kobe Company is regarded as one of the biggest steel makers in the whole world. The company stands as the third biggest steel maker in the whole of Japan. Currently, it has got 200 branches and 62 affiliate companies in Europe, America and Asia.
Ethical Issues
There are an ethics scandal at Kobe Company in 2018, which forced the company’s CEO, Kiroya Kawasaki to step down as the chief executive officer as well as president of the organization. The ethical issue in this case was the widespread falsification of quality data regarding the metal supplied to automobile companies like Toyota, Subaru, Nissan and Ford ( Boudette, 2017) . It emerged that the company had been falsifying this data for a period of over ten years. In its effect, the company had been selling sub-standard metal products such as aluminium, copper and powdered steel. These metals are normally used by the clients of Kobe to make molded parts ( Boudette, 2017) .
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In Japan, specifically, steel is an important commodity since the country has got many production plants for organizations which manufacture metal-related goods like cars, phones and household commodities. In fact, Japan has always had an edge over China because of the quality and precision in the goods manufactured within this country ( Soble & Boudette, 2017) . The employees at Kobe were expected to test products and make sure their design and standard of quality satisfied the one set out in specific customer contracts ( Boudette, 2017) . However, it was admitted that in many cases these tests were not carried out at all. Therefore, the company’s employees turned to the practice of falsifying records regarding quality by advertently altering the inspection certificates. The implication of the altered records was simply showing that the company’s metals met the quality specified by customers even when it did not.
Stakeholders involved in the Kobe Steel scandal
The stakeholders involved in the scandal were mainly the employees. However, business executive officers within the management were also caught up in the unethical behaviour. However, the involvement of the executive officers was limited to the misconduct in aluminium and copper products only. It was also established that two executive officers were aware of the misconduct, but chose not to report it. The third tier of stakeholders involved was made up of the former executive officers ( Boudette, 2017) . The issue affected all the clients of the company who are mainly manufacturing companies like Toyota and Apple. These are companies which rely on metal raw materials such as aluminium and copper for production of their goods.
Implications
Kobe Corporation had a very bad scandal of product quality accounting fraud discovered and revealed to the public in the year 2018. Kobe has been among the celebrated top corporations based in Japan. It is a company that has been hailed for long because of being at the apex of good business culture in Japan. When this problem was first discovered, it sounded simple and small. However, it later grew to involve a very huge amount of money.
The quality accounting fraud case of Kobe was discovered when this company initiated a self-checking probe. An independent investigation team invited to probe this case further faulted the company’s Chief Executive Officer and his team of executive managers (Cheong, 2017). The report adversely implicated these three CEOs for putting much pressure on the corporation’s managers with unrealistic sales as well as quality targets to be achieved for competition purpose. It was explained that occasionally, the challenge and pressure to achieve set quality standard targets would be issued down to the managers by the CEOs just before the end of a quarter or fiscal year ( Boudette, 2017). This situation always left managers with very little time for doing the actual selling of products. It was, therefore, easier for them to fudge figures by simply deferring the recording of losses and recognizing the advance sales. The investigative report also mentioned that there was an entrenched culture at Kobe, where it stood forbidden for anyone to go against the orders and wishes of superiors.
Corporate Culture
It emerged that the company has a culture of holding monthly meetings that are steered by the president of Kobe. The top executive officers of the company, including the chief financial officer, also attend the meetings. In these meetings, the various business units and major subsidiaries of Kobe Corporation normally report their monthly results. Quality standard targets are normally set in these meetings and pressure put on managers to ensure they achieve them. The underperforming ones are put to task and under fire during the meetings ( Boudette, 2017). Therefore, there is always an air of anxiety for the executive officers and managers hence causing unorthodox methods of ensuring profit targets are met. The executive managers willingly and consciously decide to inflate the earnings of company subsidiaries and business units in order to make up for the unachieved part of the set targets (Chapter 7). This story explains the reason for the $1.26 billion inflated earning revealed at Kobe in the year 2015.
Utilitarian View
Despite being law-abiding and normal executive managers who are aware of the required right business culture practice, they were put in a situation that forced them to commit accounting fraud in order to satisfy the demands of the CEOs of Kobe. In fact, Kobe has for long been known as an ethical company all years of its existence and it is ranked among the top corporations in Japan that obey good business culture practices. This good and untainted history of Kobe is what enabled the accounting fraud to take long before being discovered (Chapter 7). A lot of had put much trust in the management of Kobe to the extent its financial statement reports could not even be questioned on the assumption they were clean and factual. Believably, the managers acted unethically because of the pressure of unrealistic sales targets and budgetary goals set by the top executives of the company.
Aristotle View
It is reasonable to note that the managers had moral awareness, but were overwhelmed by their decision biasness towards reporting figures that satisfied the set unrealistic earnings targets. Importantly, moral awareness refers to the ability to know and recognize the ethical aspects of a given decision to be made. The Kobe knew that it was unethical to engage in fraudulent accounting practices, but were biased in terms of decision-making considering the pressure on them.
It is observed that rationalization normally involves a process of over-compensation, where the justification given is excessive when compared to the real act. It is this rationalization that then enhances chances of more acts of corruption. In this case of Kobe, it is true that self-deception and rationalization had a major role in justifying the practice of accounting fraud of the company’s profits (Chapter 7). Other causes included grandiose and voracious business targets of the CEOs at Kobe. It is important to observe the fact that rationalization usually entails the perpetrators alleviating the moral anxiety through different justifications for their corrupt deeds. Therefore, they even do not view themselves as engaging in corruption.
How the new CEO should address the quality issues and unethical behavior
Kobe CEO should create an environment where whistle blowing is effective. The culture of obedience and subjugation to the superiors needed to have been broken so that individuals who have dissenting views can find the confidence to make them known. Moreover, the company should have involved external stakeholders in its decision-making process. Bloxham notes that outsiders and individuals who consider themselves as such are more probable of speaking up about a mistake than insiders and people involved in decision making process. The company needed to have contracted independent auditors to take up the work of checking its books of account all along. With an independent auditor, such unethical actions could have been detected early in time and prevented. Finally, the business quality standards set by the Kobe’s CEO are supposed to be made realistic and based on practical trends in the market.
Conclusion
Considering the fact that this unethical action of accounting fraud continued for a long period of over ten years, Kobe could have prevented it before it grew, through whistle blowing. While commenting on the BP Plc. oil scandal, Eleanor Bloxham notes that what organizations miss in order to prevent unethical behaviors are whistle blowers. Whistle blowers help in preventing such scandals by notifying the public in time so that the corrupt practice is prevented in a timely manner. It is the way forward for Kobe Steel.
References
Bloxham, E.., (n.d). “ What BP was missing on Deepwater Horizon: a whistle-blower.” Fortune.com . Accessed at http://archive.fortune.com/2010/06/22/news/companies/bp_horizon_macondo_whistleblower.fortune/index.htm.
Boudette, N. E. (2017, October 17). Kobe Steel scandal is now subject of Justice Department inquiry. The New York Times. Retrieved from https://www.nytimes.com/2017/10/17/business/kobe-steel-justice-department.html.
Chapter 7: Employee’s Ethics: Making the Best of the Job You Have as You Get from 9 to 5. https://saylordotorg.github.io/text_the-business-ethics-workshop/s11-employee-s-ethics-making-the-b.html.
Cheong, S. (2017, October 30). The Kobe Steel scandal flows through the entire supply chain. Insight Factset. Retrieved from https://insight.factset.com/the-kobe-steel-scandal-flows-through-the-entire-supply-chain.
Soble, J., and Boudette, N. E. (2017, October 10). Kobe Steel’s falsified data is another blow to Japan’s reputation. The New York Times. Retrieved fromhttps://www.nytimes.com/2017/10/10/business/kobe-steel-japan.html.
