Toyota: How One Failure Begets Another

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But what it knows about consumers appears to have been limited to how to sell them cars. Missing was the ability to listen to their concerns.

Failure has never been part of Toyota's vocabulary, so the company was unable to recognize or respond to the kinds of "normal" failures that are inevitable in any large, complex business. Toyota learned little or nothing between one recall and the next. It did not take early recalls as information, but only as problems to be disposed of in the most expeditious manner. In this way, it built its current mammoth challenge through small incidents of neglect.

U.S. Transportation Secretary Ray LaHood said that federal officials, to attract Toyota's attention to safety concerns, had to "wake them up." As recently as last November, Toyota, in trying to limit the focus of public conversation about acceleration problems to floor mats, said, "there is no evidence to support" any other cause. The comment displayed little of the curiosity that led Toyota's engineers to invent thousands of innovative ways to make a better car.

No one should doubt that Toyota will recover from this painful interlude. Management is surely in deep learning mode these days, having a great deal to catch up on. Here's what they teach in the classes Toyota skipped:

• Always Solicit Outside Voices.

The overwhelming majority of corporate reputation failures result from the Echo Effect—managers inside a company talking each other into ill-advised strategies that bring substantial, hidden downsides. The inclusion of diverse, independent points of view, including those of outside advisers, will go a long way toward assuring that financial interests do not overwhelm the company's judgment.

• Make Sure Corporate Decisions Align With Personal Values.

Much of the public's post-meltdown outrage at business focuses on what I call the Corporate Exception—the apparent belief that different standards of conduct prevail within the company than in the outside world. In the age of scrutiny, managers and all employees must bring their personal values to work. They have no other frame of reference than their own experience to understand how the world sees them. The standard quantitative measurements of business, while still crucial, are no longer enough to protect the company—as Toyota has learned.

• Be Skeptical of Your Own Story.

Every successful company has a narrative that explains its value and its right to exist, and that often refers to a public good. Toyota's has focused on building virtually every class of desirable auto for the world—and doing it with utmost quality. Toyota's story about itself, while utterly true, was incomplete. It addressed the product only, and it therefore blinded the company to the extreme vulnerabilities that have now appeared.

Toyota is hardly the only company that could benefit from these principles. It's merely the current occupant of the spotlight, and its experience should demonstrate to every manager that there are a thousand ways to go wrong. Even building the world's favorite car—by itself—is not enough to save you. That's what Toyota is learning.

Peter Firestein is author of CRISIS OF CHARACTER —Building Corporate Reputation in the Age of Skepticism. He advises corporations on how to create the structures and strategies needed to improve relationships with both external and internal constituencies. Peter is originator of The Open Perception Study™, a forward-looking methodology that identifies investor sentiment. He publishes The Corporate Reputation Monthly and a corporate reputation blog. For more information at www.peterfirestein.com .

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