Japanese electronics manufacturer, Panasonic Corp. has agreed to pay $280 million to settle allegations from the US government. There have been allegations of that the company’s executives at its in-flight-entertainment unit improperly hid payments to consultants in the Middle East and Asia.
Japan, over the years, has prided itself on its reputation for quality manufacturing. It has used this as a selling point over China and other countries that offer cheaper alternatives to goods. The Japan Quality Association (JQA) is responsible for ISO certification. It was established in 1958 as the Japan Management Institute (JMI) under Japan's Ministry of International Trade and Industry for the purpose of export inspection.
However, in recent years, the manufacturing sector has taken a significant hit due to a series of scandals. One of the largest scandals was the Takata Corporation admitting to having covered up facts. The company’s airbags were directly linked to a number of deaths and injuries that had occurred across the world. This resulted in legal action against Takata. In 2017, Takata filed for bankruptcy protection in the US and Japan and is facing billions of dollars in liabilities over its airbags. Companies like Kobe steel have also admitted to cheating.
Panasonic Corporation is a Japanese multinational electronics corporation. Founded in 1918, it began as a producer of lightbulb sockets. It is considered a peer to electronics producing giants like Sony, Hitachi, Toshiba and Canon. In addition to electronics, it offers non-electronic products and services such as home renovation services. It is one of the largest producers of televisions in the world. The company today employs 249,520. According to Forbes, its market capitalization is $26.2 Billion.
According to US authorities, the consultants from the Middle East and Asia who were paid (allegedly through hidden channels) did little to no work for the company. This is in violation of the accounting provisions of the Foreign Corrupt Practices Act.
The company has now cut a deal with the US government. In accordance to the agreement, Panasonic Avionics will pay $137 million as criminal penalty to the US Department of Justice. Its parent company meanwhile will pay $143 million in disgorgement of ill-gotten gains to the Securities and Exchange Commission. In one case in July 2007, Panasonic executives reportedly paid a Foreign Official $875,000 over six years even though the person did "little work" for the company.
Panasonic has also agreed to improve its compliance programme, hire an independent monitor and continue to cooperate in "any ongoing investigation," the court filings said. “When Panasonic Avionics Corporation caused its publicly traded parent company to falsify its books and records, it distorted the information available to legitimate investors,” said acting Assistant Attorney General John Cronan in a statement.
Panasonic has since released a statement reacting to the development. “We are pleased to have resolved these investigations. We have taken extensive steps over the past few years to strengthen Panasonic Avionics' compliance programs and internal controls, and we welcome an independent compliance monitor to assess our progress," said Hideo Nakano, CEO of Panasonic Avionics, in a statement.
Panasonic is the latest of Japanese companies to be embroiled in scandal amid allegations of cheating or improper business practices. In April 2018, a survey by Tankan, a quarterly poll of business confidence reported by the Bank of Japan, noted that Japanese business sentiment declined for the first time in two years in March.
Our assessment is that the latest development is a blow to Panasonic’s brand and its vision for its own future. The company’s president, Kazuhiro Tsuga, has in recent years positioned the high-margin in-flight entertainment business as a model for the Japanese group as it shifts away from consumer electronics products. In addition, this will also negatively affect Japanese manufacturing industry. Perhaps it is prudent for the government and these organizations to take a step back and examine why the standards appear to have fallen. Is it because these companies are overstretched? Has maximizing their supply chain compromised their quality standards?