Kobe Steel makes shocking revelation; says faked quality data, virtually kills trust in corporates

By: |
New Delhi | Published: October 12, 2017 4:05:15 AM

After Kobe Steel, trust in corporates will take a hit. Regulators prefer fines to tough action but, in the long run, this is harmful.

Kobe Steel, steel

Regulators face a dilemma—they must be careful about punishing errant corporates, especially the “too big to fail” ones, or risk injuring the economy. (Reuters)
There is no telling how Kobe Steel, which recently admitted to faking quality data for metal shipped to a Who’s-Who of a global customer list, will emerge from the episode’s aftermath. The confession has already wiped off more than a third of its share-market value, and in the near future, it must foot massive bills from likely recall/replacement demands and even legal action—including class-action suits. There could be, somewhere in the canvas, penalties and regulatory action as well. The question is whether all this will amount to just a slap on the wrist, or serve as a tale of caution for others.

Regulators face a dilemma—they must be careful about punishing errant corporates, especially the “too big to fail” ones, or risk injuring the economy. But this also means corporates that deserve much stricter treatment find punitive action a song. Kobe Steel-like corporate misconduct may not be common, but it isn’t also the proverbial blue-moon. From Ranbaxy falsifying drug data to Volkswagen’s ‘dieselgate’ scandal, there are a fair number of instances. But more shocking than such corporate delinquency is what has followed as punitive action/fallout. Sure, there are instances like auto-safety parts maker Takata Corporation’s, which filed for bankruptcy earlier this year—the fallout of misleading MNC customers on the safety of its air-bags left the company staggering under a mountain of debt. Most of its business got sold for a pittance, and the air-bag business was wound down. But, there are also the American and European banking giants that have shrugged off having to pay $321 bn in fines for their role in the 2008 financial crisis. Regulators may be scared serving some of the biggies their just desserts, but as the Takata example shows, the reaction of other players in the value-chain may cause an inevitable levelling. In the Kobe case, wielding the whipwill cause job-losses, tremors in the economy, etc. But, if Japan goes easy on the company, given the Takata episode and the Nissan quality-check fiasco, “made-in-Japan” gets a poor rap, and that can’t be good for the economy. Keep in mind, Takata had been spared the rod by the US regulator in 1995, for faulty seat-belts.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Next Stories
1Firecracker ban in Delhi: Air pollution does rise in Delhi, but is very high at other times too; what is SC plan for these periods?
2Rajasthan DBT inks big success; payments under Bhamashah scheme cross Rs 10,000 cr
3Stent price capping bad idea, now Centre must fight off this Chinese threat