Risk, Issues & Crisis

May 10, 2016

Automotive scandals provide valuable insights for C-suites


Written by Kate Clough, Associate Partner, Risk & Crisis

With Mitsubishi providing the latest fodder for new case studies illustrating how not to manage risk, it is surely time for those accountable for risk management across all sectors to review their own practises.

One of the staggering factors about both the VW case, which went public in September 2015, and Mitsubishi’s current fall from grace, is just how avoidable both scenarios were.

One wonders if Mitsubishi President Tetsuro Aikawa is already asking: “Chikushō! Why wasn’t this on the risk register?” Perhaps he is too busy right now responding to media demands for: “What happened?”, “How did it happen?”, “What are you doing about it?” and of course, “Who is to blame?”

However, those executives not currently managing a live crisis are free to reflect on this: how it was that, in spite of Mitsubishi falsifying fuel economy data since 1991, it took a third party (Nissan) to expose the deception. They may also remind themselves that the VW situation came to light via a regulator (EPA).

But of course, the metaphoric phrase, “don’t shoot the messenger” was not created by accident. No one likes to receive bad news, therefore effective risk management can only flourish in a culture which encourages transparency and a healthy approach to potential problems. This must come from the top and be owned by an executive member of the board.

All too often risk management is delegated too far down the organisation, or it is approached as a box-ticking exercise which aims to ‘prove’ the business is risk free. In fact, it is much safer to take a thorough approach to risk assessment and embrace new risks – which, when well-managed, may be transformed into new opportunities.

Risk management is often a victim of the Everybody, Somebody, Anybody and Nobody syndrome –  everybody was sure that somebody would do it.  Anybody could have done it, but nobody did it.

Or, it is a largely theoretical exercise that never permeates far below Board level, and hence draws no insight from what’s really happening at the grassroots level.

Lack of effective risk management can have significant long- and short-term impact on reputation, brands, profits and growth. If in doubt, ask Mitsubishi and VW. They would doubtless agree that prevention is better (and cheaper) than a cure.

That being so, how could these businesses have avoided the scandal that has engulfed them if they could roll back the tape?

  1. Assign board level accountability for risk management – ensuring this person accepts ownership and embraces the challenge
  2. Run regular risk assessments, joining up operational and support functions; actively looking for what could stop the organisation functioning in five years’ time (or sooner). Replicate these at country and site level
  3. Develop a positive risk culture: forewarned is forearmed. There must be no shooting of messengers (or, indeed, asphyxiation of the messenger by excessive nitrogen oxides).
  4. Build risk management action planning into the business strategy and report transparently on your progress
  5. Never leave a risk unchallenged – put in place an action plan to mitigate or eliminate it or plan to accept it

Following these tips could help rewrite the end of the story.

Instead of everybody blaming somebody when nobody did what anybody could have, wouldn’t it be great if everyone was clear on their own personal responsibility for risk management, and were happy to report all potential problems to their line manager… right up to the C-suite?

This article also appeared here in Automotive World