Corporate Credibility – Akio Toyoda Case Study

Corporate Credibility – This is a big one, team! Let’s get aligned.

I’m often asked about how to build corporate credibility, which is both easy and hard. The key is to match what you say to what you do. Akio Toyoda had one of the biggest business leadership challenges so far this century. He led the Toyota Motor Corporation through arguably its most challenging season, on the foundation of measurable alignment between his own behaviours, and the company’s spoken values. This case study is an example of the world’s most needed leadership resource: credibility (Kouzes & Posner, 2003).

At the end of 2007, Toyota was number two in auto sales in the U.S., just behind General Motors, and in 2009, they were #1 in the world. Yet in April 2008, the US government opened an investigation into reports of sticking accelerators contributing to car accidents involving Toyota cars, resulting in a recall of nearly 8 million cars. Toyota ended 2009 with a $4.5 billion USD net loss, and shares subsequently fell 36% over the following year. At the height of the controversy, Toyota faced a criminal investigation by U.S. federal prosecutors. But the U.S. government had taken a 61% interest in the General Motors bailout, and had become the majority shareholder in Toyota’s biggest competitor.

On February 8, 2011, the NHTSA released the findings of its report co-produced by NASA, which found no electronic cause to the sticky pedal issue, and that the primary mechanical cause was driver error. The ‘sticky pedal’ was not a mechanical problem, it was a public perception problem.

Toyota believed in its product and defended it while simultaneously acknowledging public concern and submitting to its competitor’s inquisition. In the end, Toyota was right.  Yet even though the sticky pedal was not determined to be a manufacturing problem, and Toyota cars were declared safe, Toyota paid a very high price for the drop in consumer confidence that drove the company into crisis. Toyota lost billions (USD) to a rumour, and the subsequent hysteria that followed. No matter the cause, the storm had to be navigated, and the new captain brought to the helm was Akio Toyoda, the founder’s grandson.  He determined to meet the challenge ‘The Toyota Way’.

The Toyota Way                             

In 2001, the Toyota Motor Company published an internal document presenting The Toyota Way, a value driven philosophy that begins with two overarching principles, and five guiding values:

On February 23, 2010, the day before Akio Toyoda testified before the U.S. Congress, he published an open letter in the Wall Street Journal which set the tone for his approach to the challenges he faced as CEO. He wrote,

When my grandfather brought Toyota into the auto business in 1937, he created a set of principles that has always guided how we operate. We call it the Toyota Way, and its pillars are “respect for people” and “continuous improvement.” I believe in these core principles. And I am convinced that the only way for Toyota to emerge stronger from this experience is to adhere more closely to them. (Toyoda, 2010)

1.     Respect for People: Respect

Akio faced a US congressional panel of the legal representatives of the majority shareholder of his largest global competitor: General Motors. That conflict of interest was never addressed. In spite of this, Akio showed the highest humility, apologizing for faults that were not yet proven to exist, apologizing for the perceived lack of speed with which his company had responded to the rumours, and promising improvements in quality to address the perceived issues.

2.     Respect for People: Teamwork

Toyoda was eager to communicate solidarity with his staff.  Executives relinquished their bonuses in 2009 and 2010.  Akio Toyoda himself was paid less than $1 million USD for his first year as CEO, and the entire executive team took a 10% reduction in pay (Tabuchi, 2010).

By contrast, General Motors CEO Richard Wagoner received $14.9 million USD in compensation for the 2008 year.  His successor, Fritz Henderson, received USD $8.7 million for the same year, and a further USD $5.4 million as CEO for 2009, the year Henderson himself signed GM’s bankruptcy papers.

3.     Continuous Improvement: Challenge

In March, 2011, Akio announced the next formulation of the Toyota vision,

Toyota will lead the way to the future of mobility … Enriching lives around the world … With the safest and most responsible ways of moving people … Through our commitment to quality, constant innovation … Through our commitment to quality, constant innovation … We aim to exceed expectations and be rewarded with a smile. … We will meet challenging goals by engaging the talent and passion of people … who believe there is always a better way. (Toyoda, 2011, pp. 2-3)

Articulating a new vision in a company of 300,000 employees, and in the middle of the economic and marketing challenge of the century, was a massive communal undertaking.  The final product communicates effectively Toyota’s BHAG, and it must be remembered that it was developed in the midst of serious threats to Toyota, and at the initiative of its CEO.

4.     Continuous Improvement: Kaizen (Improvement)

Not only has Toyota recovered from the crisis with improved manufacturing processes, they have done so with style, earning the Quality Control Medal from the Union of Japanese Scientists and Engineers, and the European 2011 Green Manufacturing Award. This certainly is evidence of innovative evolution beyond a simple recovery.

Toyoda’s staff was reaching up to him and he was reaching down, but teamwork for Akio was not internally limited.  He expressed his Teamwork and Kaizen values by reaching laterally for other CEOs, brokering collaborative deals personally with the CEOs of Ford, Tesla, and Aston Martin (Greimel, 2011).

5.     Continuous Improvement: Genchi Genbustu (Go see for yourself)

Toyoda himself went to the source of the problem.  He pledged, “I will continue to personally visit our sales and manufacturing workplaces to reaffirm the Toyota commitment to excellent quality” (Toyoda, 2010).  Yet his commitment to going to the source was not limited to the internal structures of Toyota.  As was apparent, the problem was not limited to the manufacturing process; the real problem was consumer confidence.

Toyoda went so far as to place himself at the source of the reputation problem stating, “All Toyota vehicles bear my name.  When cars are damaged, it is as though I am as well” (Toyoda, 2010).  He thus invariably linked Toyota quality to his own credibility.  He similarly reassured his own staff, “As for our series of quality problems, I, personally, played a direct role in explaining to the U.S. Congress, to members of the media around the world, and, to, most of all, our customers, what kind of company we are and what kind of values we hold” (Toyoda, 2011, p. 1).

Conclusion

Toyoda emerges as an exemplar of Kraemer’s (2011) four principles by which we may identify a leader who is aligned to their own values: self-reflection, balance and perspective, true self-confidence, and genuine humility.  Toyoda effectively led his company back to profitability, recovered its share value, built external collaborative relationships with other manufacturers, and regained U.S. consumer confidence.

Building corporate credibility through behavioural alignment to espoused values is a core outcome of effective companies. Toyota is presently holding the world no. 1 spot having also recovered from the 2011 Japan earthquake and tsunami that knocked out more than 650 Toyota suppliers. That, my dear friends, is profitable credibility.

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References

1. Greimel, H. (2011). Doing Deals, Akio Style. (Cover Story). Automotive News, 86(6479). Retrieved from

2. Kouzes, J. M., & Posner, B. Z. (2003). Credibility: How Leaders Gain and Lose It, Why People Demand It. San Fransisco, CA: Jossey-Bass.

3. Kraemer, H. M. J. (2011). From Values to Action: The Four Principles of Value-Based Leadership. San Fransisco, CA: Jossey-Bass.

4. Tabuchi, H. (2010, August 4). Toyota Recovers from a Slump to Report a $2.2 Billion Profit, The New York Times. Retrieved from http://www.nytimes.com/2010/08/05/business/global/05toyota.html

5. Toyoda, A. (2010). Back to Basics for Toyota, Wall Street Journal. Retrieved from http://online.wsj.com/article/SB10001424052748704454304575081644051321722.html

6. Toyoda, A. (2011). The Toyota Global Vision. www.toyota-global.com. Retrieved from http://www.toyota-global.com/company/message_from_president/speech110309.pdf