By Yuka Obayashi
TOKYO (Reuters) – Kobe Steel Ltd said on Tuesday its CEO will step down to take responsibility for a widespread data fraud scandal, although doubts remain over a corporate culture mired in malfeasance and the possibility of future fines.
Japan’s third-largest steelmaker, which supplies steel parts to manufacturers of cars, planes and trains around the world, admitted last year to supplying products with falsified specifications to about 500 customers, throwing global supply chains into turmoil.
Kobe Steel, in announcing the results from a four-month-long investigation by an external committee, said it found a new case of impropriety affecting a total of more than 600 clients.
Hiroya Kawasaki will resign as CEO and Chairman on April 1, with his successor to be decided at a board meeting to be held soon, the company said.
“We discovered that inappropriate actions were widespread, and were carried out with the knowledge and involvement of many, including management,” it said.
“Considering the multiple compliance issues that we’ve had in the past, we must say that there are deep-rooted problems, not only in terms of compliance but also in the corporate culture and mindset of employees and management.”
It also announced the resignation of Executive Vice President Akira Kaneko and temporary pay cuts of up to 80 percent for all internal executive officers.
The case was one of the country’s biggest industrial scandals in recent memory, which set off a rash of malfeasance revelations by other Japanese heavyweights, hitting the country’s reputation for manufacturing excellence.
In the past several months, Mitsubishi Materials Corp, Toray Industries and Ube Industries have also admitted to product data fabrication while automakers Nissan Motor and Subaru Corp have revealed incorrect final inspection procedures.
Kobe Steel said the data cheating started in the 1970s, and those who know the 112-year-old company say its problems are entrenched.
“What you see is a pattern, a culture,” said Steven Bleistein, CEO of Tokyo-based consultancy Relansa. “Company culture is something that a leader creates, so the very least you have to do is to remove the leader and the people who were complicit, from the CEO downwards.”
Kobe Steel admitted earlier to taking part in bid-rigging for a bridge project in 2005, and failing to report income to tax authorities in 2008, 2011 and 2013.
In 2006, it also exceeded established limits for ground and water pollution, and admitted to falsifying soot-emissions data from blast furnaces at Kobe Works and Kakogawa Works. Illegal political funding to candidates in local assembly elections in 2009 prompted the resignations of the then CEO and chairman.
For now, the data fraud scandal appears to have left Kobe Steel’s finances unscathed. In February, the company reinstated a forecast for its first annual profit in three years for the year ending March 31, backed by strong profits in steel and machinery.
But the company is also undergoing a U.S. Justice Department probe, meaning it still faces legal and financial risk. A Japanese government-sanctioned seal of quality has been revoked on some of its product as well.
“There is a pending risk for Kobe Steel as customers at home or abroad may cancel their contracts and they may take legal actions, and the U.S. Justice Department may seek a penalty,” said Makiko Yoshimura, director at S&P Global Rating Japan.
It is unclear how much a Justice Department fine would be. Last year, Japan’s Takata Corp agreed to plead guilty to criminal wrongdoing and pay $1 billion to resolve a U.S. Justice Department investigation into ruptures of its air bag inflators that were linked to more than 20 deaths worldwide.
(Reporting by Yuka Obayashi; Additional reporting by Chris Thomas and Indranil Sarkar in BENGALURU, Minami Funakoshi in TOKYO; Writing by Ritsuko Ando; Editing by Stephen Coates and Tom Hogue)