Theme: Survival after a major corporate disaster

1. What do you think are the underlying causes of the two SBM scandals?
The events leading to the two Snow Brand Milk Products Co (SBM) scandals in 2000 and 2002 were
caused by two different factors:
 On the one hand, it was concluded that low-fat milk contamination in 2000 occurred due to
the presence of enterotoxine in skim milk powder. According to an internal investigation by
SBM, enterotoxine was generated by staphylococcus bacteria while milk remained at room
temperature during a long power outage at the company’s facility in Hokkaido. The resulting
contaminated skim milk power was used at the Osaka manufacturing plant as an ingredient
in the production of other milk products.
The results of such investigation were released after three months of intense speculation
and poor crisis management by SBM:
o Following the first report of food poisoning, the lack of a centralized reporting system
made it difficult for both SBM and the different authorities to coordinate efforts in
order to evaluate the magnitude of the problem and identify its root cause. Some
people blamed an industry practice of using expired milk for production purposes,
while initial investigations indicated improper maintenance of a valve which milk
passed through.
o Meanwhile, after SBM’s late realization of their production problem, the company
started releasing vague, incomplete, misleading and even contradictory statements.
In addition, they ignored the request of the Japanese department of health to
voluntarily recall certain products, and deliberately lied about the frequency of use
of the valve thought to have caused the contamination. Furthermore, SBM’s CEO at
the time of contamination, Tetsuro Ishikawa, irritated the public opinion by affirming
that he was suffering as much as the victims of the scandal, which resulted in the
death of one woman and injuries to 199.
 On the other hand, SBM subsidiary Snow Brand Food (SBF) deliberately mislabeled the origin
of its beef in order to profit from a Japanese government program. Succeeding the first case
of mad cow disease in Japan, the government initiated a buyback program aiming at keeping
suspect beef off the population and subsidizing farm and industry losses. In this respect, SBF
accepted to have received $1.8 million fraudulently from the plan in 2002. Additionally, the
company admitted that beef from Hokkaido, where the first case of mad cow disease was
detected in Japan, was relabeled as coming from a different region.
After having analyzed the events detailed below, I believe the underlying causes of both scandals
should not include the technical negligence leading to milk contamination. According to the article,
the industry lacked the capability to detect enterotoxine in food, and the company followed their
standard procedures and quality controls, which did not account for such long power outages.
Instead, I think the scandals can be attributed to SBM’s crisis management, deliberate lies and
misconduct and lack ethical sensitivity, especially considering that it was a powerful and well-
respected brand that enjoyed great consumer trust and shin.
 2. If you had become the CEO of SBM, what kind of revitalization program would you have
implemented? Explain the rationale for each initiative.
If I had become the CEO of SBM after the second scandal, I would have implemented a revitalization
program focused on regaining consumer trust and shin, based on the following six core areas:
Corporate Image, Vision, Company Structure, Passion for Quality and Safety, Focus on Customers
and Management.
Corporate Image
The two scandals had a massive impact on the image of the company, resulting in a loss of consumer
trust and customer exacerbation, and effectively leading to a blacklist of SBM’s products. It is
essential to improve the corporate image in order to regain SBM’s previous dominant place in the
market.
 Change of logo: To symbolize the introduction of the company’s new values including
Passion for Quality and Focus on Customers.
 Corporate culture: Redefine the corporate culture, focusing on motivation, cohesion,
reliability and sincerity or shin.
 Social responsibility: Abandon previous misconduct and lack of honesty and ethical
sensitivity, and lead the introduction of ethics and integrity in Japanese businesses.
 Transparency: Provide all available non-confidential information to customers and
stakeholders. For example, SBM could provide traceability services of all its products via a
tracking number of barcode. This would imply a relatively large implementation cost, but at
the same time would consolidate the transparency standards of the company.
 Advertising: Communicate the company’s new corporate image and values to the public
across multiple fronts including television, press, internet and social media. A possible
advertisement would show all SBM employees drinking milk cohesively and happily.
 Fast-responsiveness: Ensure that all internal and external issues that may arise are identified,
communicated and solved rapidly.
 Nobuko Hiwasa (a leading consumer activist in Japan): Accept Hiwasa’s three conditions and
secure her appointment as a new member of the board of directors.
Vision
The company’s vision would remain the same: Providing customers with wholesome dairy products.
This vision has proven to be successful, since SBM was the industry leader in Japan and was ranked
in the Fortune Global 500 before the scandals.
Passion for Quality and Safety
The company would allocate as many resources as possible to provide its customers with the highest
quality and safety standards.
 Both SBM employees and external auditors would conduct exhaustive quality and safety
controls on all processes and products on a regular basis.
 Exhaustive maintenance would be performed on all equipment in direct contact with the
company’s products.
  State-of-the-art equipment would be purchased to maximize the chances of noticing any
source of contamination.
 Employees would be encouraged to make suggestions on how to ensure the sustainability
of such high quality and safety standards.
 No-risk policy regarding quality and safety.
Focus on customers
The traditional Japanese management style defined by unmei kyodotai, which implies that
businesses exist for the sake of its managers and employees, would be shifted to a customer-
oriented focus. This is particularly necessary after the customer’s loss of trust following the scandals.
Management
In order to avoid running into the same quality and safety mistakes, it would be required to assign
a high degree of responsibility and accountability to all managers and employees, with clear
procedures to follow and goals to achieve.
 The traditional Japanese seniority-based recognition would shift towards a performance-
based recognition.
 Focus on execution.
Company structure
 The company’s milk units would not be spinned-off, given its core importance in the SBM
unchanged vision.
 The Product Safety Audit Department, the Customer Relations Center and the Institute of
Food Hygiene that were created after the first scandal would be also maintained, since they
fit with the current revitalization plan. Contrarily, SBF would not be restored (it was dissolved
after the second scandal).
 Furthermore, a new Business Development division would be created to explore joint
ventures aiming at vertical or horizontal integration as well as synergy-based diversification
opportunities.
 3. Based on what you have learned in 8 cases, what do you think is the biggest issue in the
transformation process of a Japanese company? How do you overcome that if you face it
as CEO?
During this very interesting course, we have been exposed to the difficulties some large corporations
had to face at a given point in time, and the strategy they used to try to turn things around.
Based on the cases we have discussed, I believe the biggest issue in the transformation process of a
company is to get the vision right, regardless of the company’s country of origin. A very clear
example of the vision’s relevance is the Matsui Securities case, whose visionary CEO kept
implementing innovative solutions targeting a very specific market segment ahead of the
competitors. Other examples of CEOs with the right vision include:
 IBM’s Gerstner, who decided to go as one IBM.
 Fujifilm’s Komori, who sensed the urgency of changing and decided to use the company’s
core chemical technologies in new markets.
 Nissan’s Ghosn, who decided to implement fundamental changes while safeguarding the
company’s identity.
 Asahi’s Murai, who decided to change the corporate trademark as well as the beer taste.
 Mitsubishi’s Makihara, who set the foundation of the company’s future direction.
Contrarily, Kodak’s CEO Fisher failed to get the vision right and drove the company into a
complicated situation.
Apart from the vision, there are other factors that determine the success of a company’s
transformation process including and the ability to execute with urgency and make changes stick.
When it comes to Japanese companies, their distinctive management style makes transformation
processes very interesting but somewhat challenging due to the following reasons (from high to low
importance):
 The need for consensus within Japanese companies slows down the decision-making process
and usually results in conservative actions, leading to slow movements and poor crisis
management.
 The lifetime employment and seniority-based evaluation acts as a motivation killer and
prevents young ambitious employees from promoting. In this respect, the significance and
rigidness of HR departments does not help.
 The reason for Japanese companies to exist is their managers and employees, which
sometimes results in a lack of customer-oriented focus.
 The internationalization capability is only limited because of lack of English language skills.
If I face such problems as a CEO, I would assign responsibility and accountability to all managers and
employees, setting up clears goals in order promote rapid execution. Furthermore, I would shift
from seniority-based evaluation to performance-based evaluation, and I would promote high
performing employees regardless of their age. Finally, I would change the mindset and culture of
the company aiming at focalizing efforts on customers.