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Kobe Steel blames data scandal on focus on profit, lack of controls
November 10, 2017 / 4:25 AM / in 12 days

Kobe Steel blames data scandal on focus on profit, lack of controls

TOKYO (Reuters) - Kobe Steel Ltd (5406.T) said on Friday a lack of quality controls and a focus on profits was behind the widespread data tampering that has shaken up the supply chains of car and plane makers around the world.

Japan’s third-largest steelmaker, which has posted losses in the last two business years, promised to automate more of its operations and reorganize its quality control systems to recover from one of the nation’s biggest corporate scandals.

The 112-year-old company admitted last month that workers had tampered with product specifications, causing global automakers, aircraft manufacturers and other companies to check whether the safety or performance of their products had been compromised.

No safety issues have so far been identified from the data cheating, which mainly involves falsely certifying the strength and durability of products. (Graphics on 'Kobe Steel scandal' - tmsnrt.rs/2zxslFu)

Kobe Steel was ordered last month by the Ministry of Economy, Trade and Industry (METI) to provide a detailed explanation of the data cheating and say what steps it would take to prevent future abuses.

“Improving our management and corporate governance and instilling a culture where employees can say anything are imperative,” Chief Executive Officer (CEO) Hiroya Kawasaki said at a press briefing after submitting its report to the government. “This is my utmost priority and I will work on these with unflagging resolve,” he said.

Kawasaki said his “ultimate management responsibility” will be decided after recently appointed outside investigators report back to the company.

“Given the magnitude of the scandal, we expect upper management to get the boot,” Thanh Ha Pham, an analyst at Jefferies in Tokyo, wrote in a note on Friday, without saying when that might happen.

Kobe Steel President and CEO Hiroya Kawasaki attends a news conference in Tokyo, Japan, November 10, 2017. REUTERS/Toru Hanai

Multiple workers and managers at nine production sites were involved in tampering data on specifications of products, the company said in its internal report.

Some of the fabrication of data went on for 10 years, Managing Executive Officer Koji Yamamoto said, though he could not say when exactly it started.

The company is in talks with fewer than 10 customers who want to recover the costs of safety inspections, Managing Executive Officer Yoshihiko Katsukawa said.

Slideshow (6 Images)

“Clarifying your company’s thinking on the causes of this incident is a meaningful step towards restoring trust,” Akihiro Tada, director general of METI’s manufacturing industries bureau, told Kawasaki as he arrived to deliver the report.

Kobe Steel, also subject of a U.S. Justice Department inquiry as well, has had a Japanese government-sanctioned seal of quality revoked on some of its products and lost customers.

As of Friday, the company said 474 out of 525 affected customers found no safety issues or their products were deemed safe by Kobe Steel, up from 470 earlier this week.

The company has said it cannot yet fully state what impact the tampering will have on its finances. Last week, it pulled its forecast for its first annual profit in three years for the 12 months through next March.

Kobe Steel’s shares have fallen by nearly a fifth since it revealed the data fabrication a month ago.

The company's shares rose nearly 2 percent on Friday, while the Nikkei 225 .N225 fell 0.8 percent.

Additional reporting by Taiga Uranaka; Writing by Aaron Sheldrick; Editing by Chang-Ran Kim and Tom Hogue

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