Risk management lessons from recalls

By the way, John Terry has even lost his captaincy armband for the England national team. In reality, the cost of Toyota’s “errors” is starting to be felt.

Kazutaka Oshima, CEO of influential Rakuten Investment Management in Japan, was quoted saying, “The best thing not to do now is not to hold Toyota shares.”

That’s dangerous. If you trace in the annals of history, you will notice many companies’ pace to downfall is catapulted by the ‘winds from the stock market.’

However, no one should rush to dismiss Toyota as- a gone case. Toyota has been generating in excess of $200 - 300 billion in annual revenue, although it posted a $4.3 billion loss in 2009, in 2007 and 2008 the company made $13.9 billion and $17.1 billion, respectively - definitely enough to suck up a $2.3 billion charge on the bottom line.

While you can not entirely write off such a huge company, there are definitely enough lessons to be learnt even if Toyota emerges successful from the crisis.

First, aggressive unchecked growth can create unmanageable risks.

Some analysts believe the urge to upstage General Motors as world number one car manufacturer may have made Toyota drop its guard as far as quality control and risk management were concerned.

Exponential growth without corresponding growth and tightening of controls may become a company’s Achilles’ heel.

Second, it is always good to be as near the ground as possible. Get the facts quickly and manage your risks (complaints) assertively.

Third, although the chief-guardian of company’s reputation may be the CEO; it should also be everybody’s business- from the receptionist to the very top. Good communication is paramount in repairing reputational damage.

That’s why Warren Buffet once said, “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks”

But above all and most important- accept responsibility. No passing the buck. That’s why Toyota has committed to recalling all those faulty automobiles.

Mr Kihuro is a risk management practitioner at Panafrican Housing Financial institution, Shelter Afrique, headquartered in Nairobi. jkihuro@yahoo.com