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A teachable moment . . .


In what some might consider the bloodless equivalent of the honor code of seppuku practiced by Samurai warriors in feudal Japan, Kobe Steel Ltd. is going to gut-wrenching lengths to come to terms with a data-tampering scandal that has spooked the worldwide metals supply chain and punctured Japan Inc.’s reputation for product quality.

“We are extremely sorry for our improper conduct,” an eight-word exercise in contriteness greets visitors to, the company’s Web site. “We once again deeply apologize for the enormous amount of trouble we have caused to our customers, suppliers, shareholders, and many others regarding the improper conduct of Kobe Steel Ltd. and its group companies,” Kobe went on to say in the opening paragraph of a 25-page report issued Nov. 10, 2017.

Titled “Report on investigation in the causes of Kobe Steel Group’s inappropriate conduct and on measures to prevent reoccurrence,” the document shares the results of an internal investigation and includes an “analysis of causes.”

The probe traced the fraud to five root causes including:
• A management style that puts too much emphasis on evaluating profitability and closed organizational culture. “As long as the plants were profitable, management did not do enough to try to look into whether there were improper conducts with respect to quality control or grasp various issues that occurred during production activities at the plants,” the report notes.

• A culture that gives priority to production volume and meeting delivery deadlines further supported by the siloing of individual units and “immobilization” of personnel. “In a word, each organization operated in an exclusive manner,” the report notes. “Once someone started inappropriate conducts is such a closed organization, those once involved in misconducts could be promoted to a senior post or could move between the manufacturing department and the quality department as part of career paths.”

• Inadequate quality control procedures that lead to inappropriate conducts. Kobe’s self-investigation found that the company’s test processes allowed falsification and fabrication.

• Reduced awareness of conformity to specifications under contracts. Acknowledging the emphasis Kobe put on strong relationships with specific customers, the report notes that some staff began to place importance on whether or not they received complaints from customers rather than whether products satisfied customers’ specs.

• Inadequate organizational structure. The lack of audit functions was identified as the key culprit here.

None of the five “causes” identified are unique to Kobe, Japan, or the ferrous and nonferrous metals industries for that matter. At the same time, it would seem a reasonable bet that few of you reading this Comment are complete strangers to the culture and/or conditions that colluded to put Kobe Steel Ltd in harm’s way.

As you page through this edition, the main theme of which is digitalization (page 12), the birth of “smart” steelmaking (page 18), and the state of steel R&D (page 33), it’s important to take a lesson from Kobe Steel. It’s not the machines that tampered with the data, it’s the men and women who attended them and motives that drive we humans.

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