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Paloma Industries, another crisis management disaster July 24, 2006

Posted by fukumimi in general, Japan.

For the latest corporate crisis management disaster in Japan, let’s head to Nagoya and Paloma Industries.

Paloma Industries is a privately held company which is Japan’s #2 maker of gas powered water heaters (they also make other gas related equipment like gas cookers). It owns Rheem, the US water heater/HVAC company.

It has transpired that there have been more than 2 dozen incidents of CO (carbon monoxide) poisoning related to the use of Paloma water heaters, resulting in more than 20 deaths going back more than two decades.

The company’s first press conference attributed the accidents to tampering of the saftey devices within the heaters which were designed to detect incomplete combustion. The implication was that the heaters were tampered with by either users or some third party over which Paloma had no control.

It now transpires that many of the cases of “tampering” are likely to have been known if not directed by Paloma. The problem began with a manufacturing fault with the safety unit, which resulted in a large number of units failing in the field. Replacements parts were in short supply, and repairers hotwired the units so that users would not be without hot water. It appears that at least some of these incidents were carried out with Paloma’s full knowledge.

Furthermore, the production of the spare safety units was terminated although Paloma had enough information to suggest that substantial numbers of units were likely to fail. (They did keep parts for the statuatory minimum 7 years)

The Paloma Industries group is a family owned business, with turnover of around $2Billion per year. It’s current 37 year old CEO is the 4th generation of the same family to head the company. His father is Chairman.

At a recent press conference where both were in attendance, each was attempting to shield the other from blame, which you could interpret as the lovely sight of father-son mutual love, or the out of touch behaviour of a family who presided over their own little kingdom. The problem with these mini-feudal organisations that are mega-family run businesses, is that the mere employees are often put in a situation where they are simultaneously demotivated by the promotional ceiling of a company where the top tier of management is defined by blood relationships, and work in a climate of fear/intimidation of a dictatorial boss which leads to poor communications and lack of transparency within the organisation.

It was sort of tragicomic to see one of the underlings attempt to cover his Chairman’s ass by stating that he was not sure if his boss was aware of the reported accidents, even after the Chairman had stated (to his credit, but then he has all but retired from the front line and was doing it mainly to deflect attention and responsibility from his son) that he had been briefed about the incidents at the time.

I guess the underling’s behaviour would have been lauded by many if not most Japanese in the past (even now?), but my personal opinion is that these people have a misplaced sense of loyalty. Of course, being a whistleblower is still very difficult in Japan, especially if you are a middle aged man without any outstanding skills as reemployment on similar terms is a remote possibility.

Unquestioning loyalty used to be the norm and a desirable characteristic. In this day and age, I think it should be seen as a character defect. Sign of a sheeple. A real man should stick to his principles and sense of justice (he should have a moral backbone and a decent set of principles in the first place, of course).

[Sidenote: I know things were different in WW2 (Japan wasn’t a signatory to the Geneva Convention for starters) but I happen to think that people who carried out war crimes and crimes against humanity (class B and class C war crimes) even if they were following orders, should not have been enshrined with the other soldiers who gave their lives for the nation – at least the ones found guilty of crimes severe enough to merit the handing down of the death penalty (about 1000 men in total).

I don’t see how crimes against peace are in such a different league to the other two types of war crimes, both of which seem to be equally dispicable (granted, Class A criminals directed the big picture but the individual acts of barbarism seem inhuman enough to me not to justify a honourable burial). I guess the alphabetical lettering makes it appear as if A>B>C in order of severity….]

[Endnote: Haven’t all these big Japanese companies heard of PR (or even more specifically, crisis communication) management companies? Given how pathetic most Japanese executives seem to be at handling actual communication, it would seem to be a great business to be in]


1. Kurt - July 25, 2006

“sheeple”….that’s a new one to me, thanks!

at the risk of being offensive, I suppose the only surprising thing in this whole affair is that no one at the company has committed suicide yet!

given the insular nature of these enterprises as you point out, I wonder if the thought of outside counsel from PR firms would even occur to them (though surely they have lawyers, no?)

2. Chris_B - September 6, 2006

“Unquestioning loyalty used to be the norm and a desirable characteristic. In this day and age, I think it should be seen as a character defect. Sign of a sheeple. A real man should stick to his principles and sense of justice (he should have a moral backbone and a decent set of principles in the first place, of course).”

I’m going to guess that you have not worked for any length of time in a Japanese company. Sheeple get the goodies, people with backbone get kicked in the rear. Thats my experience working for a “brand name” financial company in Tokyo.

“Haven’t all these big Japanese companies heard of PR (or even more specifically, crisis communication) management companies?”

Rhetorical question right? At one of my previous employers, there was a minor problem of the (married) shacho diddling his secretary. That wasnt the problem. The problem was when she emailed pics of the two of them out to just about everyone in the industry. Several weeks after the fact an internal memo was issued saying “dont speak to the press in regards to recent events”. Of course by that time it was too little too late. I guess my current employer is better since after a recent embaracing incident the “dont talk to the press” memo came out a mere 4 days after the event.

3. fukumimi - September 13, 2006

I can see how the average salaryman has much to lose and little to gain from not toeing the company line in the “job for life” Japan (of course, job for life doesn’t mean job security it means being held captive and being fed a few scraps (ok, so enough to live fairly comfortably on, but still) – beats being unemployed and shaming your family and your descendants for posterity, mind).

I personally am willing to risk living by my principles and get shown the door if people can’t handle the truth.

Sheeple get the goodies, that is by and large true. But hey, if meaning (getting the chance to get) the goodies means I have to stay around and work in the same place for the next few decades, count me out.

Anyway, I joined my current employer mid-career, which means that unless Japanese Megabanks suddenly throw away the rule book and start putting people who weren’t recruited into the bank out of university into the top posts as a reward for services rendered (usually at the parent bank – so, perversely, those people who are directly recruited by the firm on their suitability specifically to execute the tasks required in our field are treated “differently”, compared to the career bankers who have been seconded to our firm, and even the ones that are originally from the bank but have been here too long face a glass ceiling. The top posts are reserved for recent arrivals from the mother ship, and I hear it is pretty much the same in many of the subsidiaries of Japanese banks), I’ve not got a snowball’s chance in hell in the first place.

Which is fine by me, as I’ve never really believed that I was cut out to work at the same place forever.

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