The recent problems experienced by Toyota Motor Corporation, as indicated in thi

Question

The recent problems experienced by Toyota Motor Corporation, as indicated in this week’s web article, indicate how important it is to identify and control business risks, even for highly reputable companies. There has been considerable speculation in the business press as to whether Toyota acted quickly enough in recalling vehicles, which some estimates place at 8 million worldwide. Elsewhere, reports suggested that Toyota did not tell federal regulators in Canada about a possible problem with the accelerator pedal when the company first learned of the issue. Instead Toyota waited until after the recall notice has been issued to tell regulators about the problem. Other analysts have suggested that Toyota’s rapid growth in worldwide production and sales compromised its focus on maintaining high standards of quality. In response to the crisis, Toyota temporarily closed some plants in Britain and France as a result of lower demand because of the recalls. The company also offered significant discounts to win back lost customers in North America.

Identify one stakeholder who was positively or negatively affected by the problems experienced by Toyota.

What role does effective corporate governance play in reducing the likelihood that companies will experience the types of problems faced by Toyota?

Explanation / Answer

Role of effective corporate governance :

Corporate governance is of paramount importance to a company and is almost as important as its primary business plan. When executed effectively, it can prevent corporate scandals, fraud and the civil and criminal liability of the company. It also enhances a company’s image in the public eye as a self-policing company that is responsible and worthy of shareholder and debtholder capital. It dictates the shared philosophy, practices and culture of an organization and its employees. A corporation without a system of corporate governance is often regarded as a body without a soul or conscience. Corporate governance keeps a company honest and out of trouble. If this shared philosophy breaks down, then corners will be cut, products will be defective and management will grow complacent and corrupt. The end result is a fall that will occur when gravity – in the form of audited financial reports, criminal investigations and federal probes – finally catches up, bankrupting the company overnight. Dishonest and unethical dealings can cause shareholders to flee out of fear, distrust and disgust.

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