Mitsubishi Electric: CEO exit will not end Japan Inc’s cover-up culture

Mitsubishi Electric chief executive Takeshi Sugiyama has announced his resignation. The company has admitted it falsified inspection data going back to the 1980s. Sugiyama’s departure may not be enough to resolve deep-rooted problems at the industrial group, which is capitalised at $30bn.

Secret corporate malpractice, also highlighted by a vote-rigging scandal at Toshiba, is a recurring problem in Japan, where standards of public behaviour are high.

This week the business was hit by two back-to-back reports on falsified inspection data, one for air-conditioning equipment and another for parts used in train brakes. A computer program was used to generate some of the numbers.

Investors have a sense of déjà vu. Last year, Mitsubishi Electric was found to have shipped substandard car radio receivers to the EU. Three years ago, it sold rubber products that failed to meet several standards, including durability. In between, there have been a string of other scandals.

Yet shares fell just 7 per cent this week. The relatively modest decline reflects the fact that such embarrassments are not unusual for Japanese groups. Toyota, Nissan, Hitachi and Takata have also incubated them. Jaded investors are inured to cover-ups that go wrong.

The problem with a consensual culture is that if everyone is to blame, then no one ends up carrying the can personally. It does not appear that any executives were fired or resigned previously. Retribution at the related auto equipment division was limited to a feeble voluntary 5 per cent cut of one month’s salary.

Returns on capital and equity have declined every year for the past three years. The shares, trading on a forward earnings multiple of 15 times, have sharply lagged behind the Nikkei 225 index.

Sugiyama’s resignation means a senior manager has finally taken responsibility for Mitsubishi Electric’s flawed culture. But a cynic would say that getting caught remains the biggest risk in the eyes of bosses involved in cover-ups. There have been too many false dawns for better corporate governance in Japan to hail Sugiyama’s departure, or the recent Toshiba scandal, as a turning point.

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