Mitsubishi Motors: 2016 Fuel Mileage Scandal

1. Introduction

1.1 The Story: Mitsubishi Motors Fuel Mileage Scandal

This report is to investigate and study about Japan’s sixth biggest car manufacturer, Mitsubishi Motors Corporation. Specifically, this report will concentrate on what happened in 2016 when Mitsubishi Motors claimed to have improperly presented different rates of fuel consumption as compared to the actual rates, to make it look better which led to an exaggerated fuel efficiency which affected 625,000 cars of which some consisted of microcars manufactured for Nissan (The Guardian, 2016). The scandal was discovered by Nissan when Mitsubishi Motors had supplied the cars that were manufactured for Nissan and the engineers of Nissan discovered a difference in the published fuel rating to a huge extent. This scandal dates back to almost 20 years where Mitsubishi have been cheating customers (Rifkhan, M. 2017).  This report will research on what happened and how it affected the company and its stakeholders and will draw conclusions based on the data.

1.2 This Report’s Objectives:

The main objectives of this report is to identify what happened, how it affected the company’s stakeholders and what issues with leadership & management led to such an event happening. The report shows how this could have been avoided and what measures they could have taken.

1.3 Research Data and Analysis:

This report researches various reasons that led to the scandal by looking at the concept of leadership methods, concept of stakeholders and also Corporate Social Responsibility through management theories. The data researched from different journals, books and newspapers will give an insight of Mitsubishi Motors Corporation.

                                                                             Source: Alridge, D. 2016. WJTV12

2. Stakeholder and Management Analysis

2.1 Concept of Stakeholders:

Stakeholders are individuals, groups or organisations that have an assertion to an extent over an organisation and its working. They have this power because they have contributed resources to the organisation and expect a return from it (Boddy, D. 2017).

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Different stakeholders have different interests, some of the stakeholders share the same interest but most of them do not. For example, Shareholders are more interested in financial matters and expect high returns as compared to the Government who are more concerned with the compliance of the law and ethical business management. The influence that the stakeholder exerts on the organisation depends on the amount of power the stakeholder holds internally and externally to the company, at times the influence may be negatively cornered to the business so that the stakeholder could gain from it (Boddy, D. 2017)

The amount of interest and influence that a stakeholder holds can be identified by mapping the stakeholders into different categories and plotting them on a map in terms of the influence they exert towards the organisation (O’Donovan, G. 2014)

                                                                         Source: Gabrielle O’ Donovan, 2014     Figure 1.

Figure 1 is an example of a stakeholder mapping diagram that categorizes the stakeholders in respect to their power and interest towards the organization.

2.2 Management:

Henri Fayol believed that a manager’s responsibility in an organisation is to ensure that structure of the company was effective and they must ensure that human resources and other resources were optimally and effectively utilized and gave good outputs. Fayol presented 14 principles of management and 5 main functions of management which were planning, organizing, commanding, coordinating and controlling (McGrath, J. 2013). Management is most efficient when the whole organization puts an effort to work together in teams to create a greater impact that would favor the company and lead to better results; every individual for themselves have set out goals of their own and also for the organization, putting the organization’s goals first leads to a gain for both the organization and the employees and a manager should be able to lead the team and set an example for the employees and the organization. Ethics are rules that an individual follows to set a standard in the tasks they perform, ethics are followed so as to meet the standards set by the law and by today’s society (Boddy, D. 2017). Companies adopted a strategy called Corporate Social Responsibility (CSR) to ensure ethical conduct in the organization. CSR means ensuring that the stakeholders of a firm are treated ethically or treating stakeholders in a manner that is acceptable by civilized societies. The wider aim of CSR is creating higher standards of living while ensuring profitability still exists for both within and outside the organization (Hopkins, M. 2006).

3. Analysis of the Scandal: Mitsubishi Motors Corp. 2016

3.1 The Stakeholders of Mitsubishi Motors Corp.

This section of the report analyses the issues faced by Mitsubishi Motors Corp. and how it affected the stakeholders of the company and analyses the problems of leadership.

1. Shareholders

The scandal was discovered when the engineers of Nissan noticed almost a 10% difference in the figures for fuel efficiency. When disclosed leading to discovery that Mitsubishi Motors had been cheating their customers for almost 20 years. The scandal could cost Mitsubishi Motors almost £2bn (The FT, 2016).

Nissan decided to buy 34% stake of Mitsubishi Motors making Nissan the top shareholder of Mitsubishi Motors and putting them in a position to make decisions for the company. Nissan vowed to regain trust and create growth and profitability for Mitsubishi Motors. Nissan did this to not let Mitsubishi Motors go bankrupt leading to Nissan making a huge investment of £1.5bn with the risk of not knowing how much the scandal could cost them. The rest of the shareholders were affected too because after the scandal broke out, the share value of Mitsubishi Motors Corp. dropped by 40% in the stock market and also with the risk of losing a lot of money and barely any returns due to a drop-in sales (The Guardian, 2016).

2. President- Mr. Tetsuro Aikawa

The president Mr. Aikawa had to attend a press conference in Tokyo and had to brief about issues in Japan relating to fuel efficiency and other matters. Mr. Aikawa had bowed in apology publicly during the conference in Tokyo, he apologized for the happening of such an event and assured that his focus was on solving the issue and preventing it from happening again (Reuters, 2016).

Mr. Aikawa, at the time held a high amount of power and control in the organization, he could have made crucial decisions and taken further steps to ensure an issue like this did not arise.

3. Government

The Ministry of land, infrastructure, travel and tourism in Japan also regulates the automobile industry and they claimed that the method Mitsubishi Motors was using to calculate fuel economy was different from Japan’s mandated standard and method (NY Times, 2016).

Japan’s ministry said that this was an issue that could have raised a lot of environmental issues and that Mitsubishi Motors could have been faced with huge fines for not meeting the mandatory standards and for using a method not approved by the Japanese Government. Upon revealing of the scandal, it led to more cases of automobile manufacturers in Japan that do not follow the standards set by the Government and use their own methods for calculating fuel economy levels, a further investigation is being done by the Government (Reuters, 2016).

The Government holds the power to shut down a company completely if the organization does not comply with the law and standards set by them. They take huge amounts of interest in the company to ensure unethical business practices are not carried out.

4. Employees

The employees were partly responsible for the falsification of the fuel economy of the micro cars, they did it so as to meet in-house standards for fuel economy and have been doing so for the past few years (Japan Times, 2016).

The employees will face immense pressure from higher authorities so that an issue like this does not occur again. Due to such an event occurring, their interest will become higher and their power would be moderate so that this does not occur again.

5. Customers

The customers were not greatly affected by the mileage scandal because it did not risk the safety of them in the faulty cars, but it did falsely advertise to the customers which made Mitsubishi Motors lose their trust even more which led to a drop in sales of Mitsubishi Motors Corp. for 2016. The customers were assured that they would be reimbursed for misleading them (Japan Times, 2016).

The customers have high interest as well as high power; due to the scandal, the sales and profit dropped because they lost the trust of their customers.

3.2 Leadership Issues

A leadership style that Mitsubishi Motors were following is a Visionary style of Leadership, this style of leadership puts emphasis on visions created by the top management and followed by the employees (Daniel, G. 2000), the issue with this style is that it puts immense pressure on the employees to work towards that vision and not be able to give their version of what should be set as goals leading to falsification of fuel economy levels.

Mitsubishi Motors Corp. put a lot of emphasis on being environment friendly and manufacturing products that did not create harm to the environment. Even though this scandal did not pose as a serious issue to the environment, it does undermine the trust of their stakeholders. Mitsubishi Motors stated and gave CSR reports showing their dedication towards environment friendly products, yet they got caught in such an issue, which shows the lack of dedication and proper communication of the top executives and leadership team which led to an issue like this to happen (Rifkhan, M. 2017).

4. Conclusions and Recommendations

4.1 Conclusion

To conclude, this report shows that the management had to be blamed for the happening of the Mitsubishi Motors Corp. scandal in 2016 which led to drop of the market value of Mitsubishi Motors by almost half, discontinuation of manufacturing of the micro cars affected which was almost 625,000, Nissan buying 34% stake of Mitsubishi Motors and also resignation of the president of the Mitsubishi Motors; all of which resulted in affecting the reputation of the company as well as losing the trust of their customers. The scandal did not pose a threat to the environment, but it did violate standards and methods set by the government which affected Mitsubishi Motors and their stakeholders a lot. This could have been avoided from the time it started, almost 20 years ago.

4.2 Recommendations

This report recommends that Mitsubishi Motors Corp. should adhere to the laws and standards set by the government in the respective countries where manufacturing happens. The leadership team and top executives should also follow a Democratic style of leadership in which the employees and rest of management can make crucial decisions when necessary on their own, suggest ideas and have better communication with the top management (Boddy, D. 2017).

This report would also recommend that Mitsubishi Motors create better CSR plans and policies and follows them strictly. This report shows that an issue like this could have been avoided, but yet it happened, and Mitsubishi Motors should ensure nothing like this sort occurs again.

5. References

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• D, G. (2000), Leadership that gets results, Harvard Business School Press, Boston. [Accessed 04 November 2018]
• Donesha Aldridge. (2018). Japan’s Mitsubishi Motors finds falsified fuel mileage tests. [ONLINE] Available at: https://www.wjtv.com/news/japans-mitsubishi-motors-finds-falsified-fuel-mileage-tests/944293524. [Accessed 0 November 2018].
• Financial Times. (2018). Subscribe to read | Financial Times. [ONLINE] Available at: https://www.ft.com/content/25d1ab2a-0c62-11e6-b0f1-61f222853ff3. [Accessed 05 November 2018].
• Hopkins, M. (2006), Corporate social responsibility and international development: is business the solution? Earthscan, London;Sterling, VA;. [Accessed 02 November 2018]
• McGrath, J. (2013), Little book of big management theories, Pearson Education Limited, Harlow. 2nd Nov [Accessed 02 November 2018]
• Mohammed Rifkhan. (2018). View of Corporate Social Responsibility: Does it Really Matter? Case study on Emission Scandals of Volkswagen and Mitsubishi. [ONLINE] Available at: http://www.ijier.net/index.php/ijier/article/view/756/606. [Accessed 05 November 2018].
• O’Donovan, G. (2014), Solvency II: Stakeholder Communications and Change, Second edn, Gower, GB. [Accessed 02 November 2018]
• The Guardian. (2018). Mitsubishi Motors admits manipulating fuel economy tests | Business | The Guardian. [ONLINE] Available at: https://www.theguardian.com/business/2016/apr/20/mitsubishi-motors-mishandled-fuel-economy-tests. [Accessed 31 October 2018].
• The Japan Times. (2018). Mitsubishi Motors’ cheating scandal | The Japan Times. [ONLINE] Available at: https://www.japantimes.co.jp/opinion/2016/04/22/editorials/mitsubishi-motors-cheating-scandal/#.W9302Wj7RPY. [Accessed 05 November 2018]
• The New York Times. (2018). Mitsubishi Admits Cheating on Fuel-Economy Tests – The New York Times. [ONLINE] Available at: https://www.nytimes.com/2016/04/21/business/mitsubishi-fuel-economy-tests.html. [Accessed 05 November 2018].
• U.S. (2018). Mitsubishi Motors admits manipulating fuel economy data, shares tumble | Reuters. [ONLINE] Available at: https://www.reuters.com/article/us-mitsubishimotors-regulations/mitsubishi-motors-admits-manipulating-fuel-economy-data-shares-tumble-idUSKCN0XH0LG. [Accessed 05 November 2018].