Wednesday, 15 June 2011

Tokyo Electric Power (TEPCO) and the nuclear plant at Fukushima Daiichi

There was a very interesting post by Bob Tricker back in April that addresses corporate governance issues behind the nuclear release at Fukushima. It is too long to reproduce but here is the link. The issues are, on the one hand, culturally specific to a Japan which is deferential to authority, avoids confrontation and manages by consensus. However it holds some broader lessons for all of us.

It appears that TEPCO has some record of safety violations and delaying the release of information, which may be putting it kindly, to shareholders, regulators and the public. It also has a large board of directors with only two non-executive directors - one of whom is a connected party. It is therefore a very large, complex company which has no real mechanism for constructively challenging the management team. You would imagine that a country such as Japan, which displays the cultural characteristics in business referred to above, has an even greater need than Western countries for some external, constructive challenges to groupthink. TEPCO and the 2009 crisis at Toyota demonstrate that companies that do not seek out challenges to their thinking deliver poor responses to crisis. Whether they are more likely to encounter a crisis in the first place is a more complex issue.

You could argue that I am being unfair and could point to BP's Deepwater oil spill as a counter-example. It seems that BP did not manage safety as well as it might, despite having genuinely non-executive directors. Well, I would not argue that the mechanism works infallibly to counter all business problems. I would argue that it is a mechanism that ought to respond well to crisis as the non-executives seek to understand what has happened. It also has a better chance of creating a climate of enquiry before disaster strikes.

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