Japanese Giants Illustrate the Dangers of Excessive Hierarchy

Ethics violations in Japanese companies are making the headlines lately. Toshiba’s “toxic culture” has been blamed for the company’s large-scale misrepresentation of returns on long-term projects in its accounting statements. Its rigid hierarchy has been cited by analysts as a contributing factor. They describe top managers who set impossible targets and pressured employees to produce profit statements to match. People who knew about the abuses felt unable to question them or speak out, and it took an external audit to expose the violations. 
​
A Financial Times article describes some of the dangers of rigid hierarchy, a characteristic of Endowment tendency in my ARC System framework. The inflexibility and formality of strong Endowment orientation, while encouraging loyalty and structure, can create a divide between top management and lower level employees that encourages corruption. People at the top feel they are above the law and people at the bottom lack the power to insist on ethical practices.
 
There are other problems, too. Employees whose opinions aren’t valued will keep useful insights to themselves. Fear of giving managers bad news causes problems to go unreported. And power distance between customers and suppliers can spread these problems throughout a supply chain. Recent revelations of defects at Kobe Steel and other companies have been attributed to suppliers’ unwillingness to admit they couldn’t meet customers’ quality specifications, another symptom of Endowment tendencies. 

Getting input from employees at every level is especially important in international contexts, where companies face new challenges and pitfalls. To counteract excessive hierarchy, managers should work to encourage a flow of information up and down the chain of command. Initiating frank discussions across levels and job functions can help disrupt siloed communication patterns and enhance exchange throughout the organization. 

Encouraging open communication takes time; people won’t be quick to express opinions that were ignored or punished in the past. Rewarding those who contribute ideas, take personal initiative, and express concerns will encourage others to follow suit. Securing input from employees throughout the organization can help firms identify and solve problems before they escalate and gain maximum value from their international workforce.

---