International -- American News: Tiremakers
"Bridgestone Just Doesn't Have a Clue How to Handle This" (int'l edition)
How Bridgestone is making its crisis worse
By Japanese standards, Bridgestone Corp. President and Chief Executive Yoichiro Kaizaki is a star. He first proved himself when he took over Firestone, the tiremaker's floundering U.S. subsidiary, in 1991. He restructured operations and got the unit on a growth track in just two years. As a reward, Bridgestone named him top executive of the entire Tokyo group. Since taking over in March, 1993, Kaizaki is credited with globalizing operations by building plants in Asia and Europe, and doubling profits in the process.
Now that Bridgestone is facing its biggest crisis ever--the recall of millions of potentially defective tires in the U.S. and elsewhere--one might think a hard-driving boss like Kaizaki would be leading the battle to defend Bridgestone's reputation. Think again. Like most Japanese execs who find themselves under scrutiny, he is lying low. In fact, he hasn't made a public appearance since Bridgestone announced its voluntary recall of Firestone tires in Tokyo on Aug. 9. Yet if Kaizaki doesn't take control, his company could end up with record losses, years of litigation--and a bad name with U.S. consumers that could cause untold damage.
Bridgestone's behavior speaks volumes about the huge gaps that still exist between U.S. and Japanese management. All the Tokyo executives under Kaizaki also seem unable or unwilling to respond to pleas from investors and the media for explanations and reassurance. "This is a huge crisis, but Bridgestone and Kaizaki are handling it terribly," says consultant Till Vestring, a vice-president at Bain & Co. Japan. Adds one American former Bridgestone/Firestone executive: "They don't have a clue how to handle this." That was apparent on Sept. 6, when Masatoshi Ono, Bridgestone's U.S. chief, stumbled through testimony before the U.S. Senate.
At the moment, Bridgestone's strategy for pulling out of this crisis seems a mix of accommodation and inaction. The company is air-shipping tires from Japan to replace questionable tires in the U.S. It's also co-operating with authorities. But overall, the strategy seems to be a dogged one of hunkering down, and waiting for the crisis to blow over.
Kaizaki's behavior is the norm in Japan. The most successful Japanese managers are masters of the art of nemawashi, the slow, quiet consensus-building required to reach decisions. CEOs are judged on how much they've boosted sales. Few are polished public speakers comfortable with the press and investors. "The Japanese don't understand the value of PR," says the U.S. exec. "They are used to a system where you send a low-level guy who bows profusely."
Three former U.S. Bridgestone managers interviewed by BUSINESS WEEK were not surprised that no American executive has taken charge: They have no power to do so. One recalled that when he worked for Bridgestone, there was a U.S. management council with an equal number of Americans and Japanese. After the group met, the Japanese contingent would hold a separate meeting to make the final decisions. And ultimate authority always resided with Kaizaki. This rigidity is now compounding Bridgestone's problems. "The company has worked very hard to get where it is today," says one ex-manager, and he regrets the gains are being squandered.
Already there are signs of disintegration. Noriaki Hirakata of Morgan Stanley Dean Witter in Tokyo projects that global revenue will decline from $19.7 billion this year to $17.8 billion in 2001. In late August, Bridgestone announced it was taking a $350 million one-time charge against earnings for the recall. That caused net earnings for the first half of 2000 to fall nearly 50% from a year ago.
The situation promises to keep Bridgestone/Firestone lawyers in the U.S. busy for years. The number of deaths linked to tire-tread separation and blowouts, often involving Ford Explorers, has reached 88 in the U.S. and 46 in Venezuela. Investigations are under way elsewhere; there have been reports of tire failures, though no fatalities, in Thailand, Malaysia and the Middle East. In the U.S., product-liability lawyers estimate that Bridgestone/Firestone could face damages and legal costs of $1 billion or more.
The issue of liability is a tricky one for Bridgestone. As of yearend, it had about $350 million in cash, and overall its business has operating margins of some 16%. So it has plenty of financial strength to withstand ruinous lawsuits. But if it turns out Firestone knowingly distributed faulty tires, then its insurers would balk at covering litigation costs. The Japanese have another fear--that incensed U.S. juries might ramp up the punitive damages because Bridgestone is Japanese.
The taciturn Kaizaki, 67, may himself be called to the witness stand when the lawsuits flood in. According to the U.S. National Highway Traffic Safety Administration, the problem with Firestone tires may date from the early '90s--coinciding with Kaizaki's stint as head of U.S. operations, when he reorganized local plants. During a period of labor unrest from 1994-96, Kaizaki, by then Bridgestone's president, demanded that wages be linked to productivity. Striking workers sacked from the troubled Decatur, Ill. plant have charged that throughout this period replacement workers stinted on quality. Bridgestone strongly denies the charge by what it calls "disgruntled workers."
As the controversy widens, investors, 23% of them non-Japanese, have punished Bridgestone's stock. Shares have lost about 50% of their value, falling from $23 on Aug. 4 to $12 on Sept. 6. "U.S. and European investors are livid over the way the company has handled the crisis," says Howard Smith, who covers Bridgestone for ING Barings Furman Selz in Tokyo.
It's too early to relegate Bridgestone to the waste heap. Since it acquired Firestone in 1988, the company has seen its sales nearly double, making it the world's second largest tire company after Goodyear. Today, Bridgestone has 50% of the huge Japanese market. In the U.S., as well as in global markets, it has a 20% share. "This is certainly not the end of Bridgestone," says Hirakata. But the damage is mounting. "You need a general leading the troops," says Bain's Vestring. Unfortunately, Yoichiro Kaizaki doesn't fit the role.By Irene M. Kunii in Tokyo and Dean Foust in Atlanta, with Bureau ReportsReturn to top