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Kobe Steel report says data distortion started in 1970s, was spurred by focus on profits

Hiroya Kawasaki, chairman and president of Kobe Steel Ltd., center, bows in apology at a news conference announcing his resignation over irregularities at the company, in Tokyo's Chuo Ward on March 6, 2018. (Mainichi)

Kobe Steel Ltd. on March 6 released a report based on a third-party probe into its falsification of product data, which concluded that the irregularities stemmed from the company's focus on revenue and its closed corporate culture.

It was also revealed that the falsification of data started in the 1970s. The company's tough measures to get back on track included renewing its board of directors and shaking up companies in the Kobe Steel group.

In a news conference, the company's chairman and president, Hiroya Kawasaki, whose resignation as CEO has been approved, said he understood that three current operating officers were aware of the data falsification, and admitted that two former executives were directly involved before they took up their positions.

"The irregularities continued for a long time with the awareness and involvement of many people including executives," Kawasaki said. "I have to say that our company has deeply rooted problems in terms of our organizational culture and in the perceptions of executives and employees."

Kobe Steel conducted its own probe into the data falsification and released a report in November last year but was unable to clarify any involvement of executives at that time. The latest report, however, reflected the results of a probe by an external investigative committee including lawyers, and gave a harsher view of the firm.

Reasons the report gave for the falsification of data included the company's acceptance of orders based on customer specifications and its production of those products when it lacked the necessary ability; an environment that made it easy to falsify data; and a clouded perception of product quality compliance. Furthermore, with the introduction of an in-house company system, "a culture placing ultimate importance on securing orders and meeting delivery times" took root, making it difficult for the head office to manage and oversee operations.

The report said that workers came to hold the mistaken perception that even if a product didn't meet the specifications, there would be no problems in terms of safety up to a certain level, so it would be OK to ship the product out, and that as a result dysfunction at the company became prolonged.

At the same time, falsification of data similar to that in the latest scandal and other irregularities were uncovered in succession from 2006, providing opportunities for the company to correct itself, but instead of addressing the issues at the company as a whole and adopting drastic methods to amend those problems, it merely took a stopgap approach. Board members' awareness of compliance issues was also insufficient, the report said.

Under a corporate culture in which some executives were aware of irregularities but tacitly accepted them and top priority was placed on profits, workers became numb in their awareness of quality management, which even led to the creation of so-called "waiver lists" at some factories, which were essentially manuals for illicit conduct.

The report stated that there was low awareness among factory workers regarding product quality, with the view that there was no problem if a product was only slightly off a customer's specifications.

In citing a reason for stepping down, Kawasaki said he had been stunned when he received the external report.

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