Mitsubishi’s emissions cheating: Lessons on transparency and the supply chain

By Tina Irgang

This week, Mitsubishi became the second major automaker in less than a year to confess that its emissions tests had been fudged to make cars look cleaner than they actually were. For CEOs, there’s a clear lesson: Make sure your internal reporting and external supply chain stand up to scrutiny. But how?

The urgency of avoiding the kind of scandal Mitsubishi now faces can hardly be overstated. The carmaker’s shares plunged 15 percent on the news of the emissions cheating, according to the Wall Street Journal. “Shares in Volkswagen, with its mighty brand and engineering prowess, still haven’t recovered from their fall in September. If that’s the model, investors shouldn’t place much hope in a quick restart for Mitsubishi,” the article notes.

The Volkwagen scandal also toppled both the CEO of Volkswagen Group in Germany and Michael Horn, the CEO of the carmaker’s U.S. affiliate. That’s despite the fact that Horn maintained falsifying emissions tests was “not a corporate decision,” and that “a couple of software engineers” were to blame, according to CNN Money.

Making internal reporting more transparent

While you might not be in the business of emissions testing, consider that falsified financials or other key reports could still have disastrous results. It’s a point many business publications have made in the aftermath of VW’s revelations.

“Accountability cannot exist without transparency, and as a leader, it’s your responsibility to ensure you can clearly see what is happening within your organization or team,” notes B2C. That includes breaking down big projects into smaller tasks to ensure responsibility is shared. It also includes “giving employees or team members multiple avenues to voice concerns and potential problems, and know they will be protected from retaliation.”

Another key point, B2C points out, is that employees must know there are consequences for actions that violate your policies: “Expectations and the consequences for failing to meet them must be spelled out in writing through a code of ethics or employment contract.” If you already have those, make sure you’re reviewing them regularly with employees. Now is as good a time as any.

Also, an external audit might help you discover and get proactive about problems, rather than being caught off guard by a sudden, public revelation. One such audit showed that various executives working for German engineering giant Siemens had over the years paid out $1.8 billion in bribes, according to The Huffington Post. Siemens had to bring in new leadership, fire some 400 top staffers, and pay steep fines and legal fees. But today, the company has been restored to financial health and ethical operations.

Creating a better supply chain

There’s also another issue to keep in mind about the Mitsubishi revelations: Most of the vehicles affected by Mitsubishi’s fudged emissions numbers were actually supplied to Nissan, according to the Wall Street Journal. So even if you’re confident that you’ve created a great culture of transparency inside your own organization, it might be time to take a look at your supply chain.

“Everything from child labor to adulterated foods and conflict minerals comes from the same dirty bucket of extended supply chains that make it easy to ignore or even hide bad behavior,” writes Forbes columnist Kevin O’Marah.

At the same time, infractions anywhere along that chain are becoming more visible due to digital technologies and global communication. The lesson? “Accountability for what business does, especially in terms of impacts on health, safety and the environment, is something we need to own,” writes O’Marah.

So how do you create a transparent supply chain that stands up to public scrutiny? First, do your research, suggests The Guardian. If there are any foreign countries involved in your supply chain, determine if they are at high risk for violations of your corporate standards on product safety or working conditions. For example, note whether there are any recent scandals that might be pertinent to your suppliers (say the use of slave labor in the Thai fishing industry or unsafe working conditions in China and Bangladesh).

The Guardian also suggests comparing your purchase agreement regularly to market rates and, if you’re paying significantly below that rate, try to find out how that’s affecting suppliers along the chain. Where are those corners being cut?

Tina Irgang is the production editor for SmartCEO. Contact her at tina@smartceo.com.