Toyota, Duty and Destiny

February 21, 2010

The successive bad-news stories at the start of 2010 for Toyota illustrate the effect of cultural factors on leadership and organizational behaviours. An understanding of dynastic history will help assess future prospects for the company

In considering the prospects for Toyota, I found myself reflecting on the nature of dynastic rule. Japan itself is still an example of a dynasty-based culture. The Japanese Dynasty is believed to be the oldest continuing hereditary monarchy in the world, with a bloodline stretching back nearly three millennia (660 BC – present day). The Emperor (天皇) symbolises a unity of the state with the Japanese people, and is head of the Japanese Imperial Family, and also the highest authority of its Shinto religion.

It has more recently become accepted to use the term dynasty to refer to family-owned businesses, where we also find transmission of authority and control handed down from generation to generation. Metaphors can be useful for imaginative purposes, but can also be misleading. Nevertheless, it is perhaps worth reflecting on dynastic leadership, and its implications for Toyota.

The Dynastic Principle

Western thought about dynastic power has been greatly influenced by the German social theorist Max Weber. One of his many significant contributions was his work on the nature of ancient and modern social structures. He proposed that traditional societies maintained stability by the society’s acceptance of the legitimacy of their ruler, and the power this permitted in the interests of the State.

Weber went on to suggest that overthrow of a society’s structure and traditions came about through charismatic opposition to them. For Weber, newer religious forms (aligned to state power) often were accompanied by charismatic leaders. He further argued that new form of control suited to modern industrial societies functioned through the power backed up by the legal authority expressed through rules and regulations. His terminology of bureaucratic control is still in common use. That’s how business students used to be taught about Weber’s theories.

Dynasties ancient and modern

The connections between the foundation of sociological thought, and today’s structuring of global organizations, are also being studied by researchers into institutional forms. A promising new area of work is into varieties of capitalism (VoC). The potential significance of this research can hardly be over-emphasized. It offers insights regarding the competitiveness of industrial firms globally, as much as insights into the diverse attempts to ‘civilize capitalism’ (as one researcher puts it).

Toyota, Ford, and other modern dynasties

Toyota may be seen as a modern institutional form, retaining dynastic power internally. The company was founded by Kiichiro Toyoda in 1937 as a spinoff from his father’s company Toyota Industries, and today’s President is Akio Toyoda.

It would be a great over-simplification to assume that such a family-based structure inhibits change and adjustment. Nevertheless, its response to its recent manufacturing and strategy problems appears consistent with a tendency to avoid radical actions which appear as threats to core cultural values.

Generalisations can be dangerous. In America, the history of the mighty Ford motor empire also shows the dynastic principle at work. From the days of Henry Ford until recently, power resided with the founding family, with current Executive chairman William C Ford the fifth generation (by my counting) of the family on board. Interestingly, Ford also came near to ruin with a safety crisis associated with the Ford Pinto in the 1970s. Ford survived that crisis, but has arguably been relatively slow to deal with competitive pressures. In the UK, its acquisition of the much-loved (but eventually cash-strapped) Jaguar mark was reversed by its sale to Tata, another globalising dynasty.

Born or Made Leaders?

Associated with dynastic structure of institutions or cultures, is the question raised of the fitness to lead. Are descendents of a founding entrepreneur especially equipped to lead into the future ? The evidence is less than clear-cut. At very least, the all-powerful leader acting ‘to the manner born’ is vulnerable to events that threaten the continuity of any organisation. Hereditary rulers of States and leaders of organizations exercise power mediated through advisors. At times the advisors contribute to forces which bring about the demise of the figurehead, in the wider interests of the Institution.

Toyota into the future

Jim Taggart, who writes on leadership issues, points to the manufacturing issues facing Toyota. He also cites a press story criticising Toyota’s risk-management approach . To understand Toyota’s present crisis, wider factors also need to be taken into account. Toyota-bashing in the US, as pointed out, is taking place with regard for socio-economic and political vested interests. Students of leadership will find much to consider in this, and in the ‘born or made’ dilemma of leadership.


Magna emerges from shadows as deal for GM Europe unfolds

May 30, 2009

GM Europe Russelheim

Few people around Europe will have heard of Magna until this week. Now the venture capital giant emerges from the shadows in a proposed bid for GM Europe

The jobs of auto-workers in England and Germany are regional concerns as a deal is thrashed out to rescue GM-Europe from insolvency.

On Friday [May 29th, 2009] a deal was nearing completion after the customary last-moment surprises

Magna is close to signing a memorandum of understanding with parent company General Motors after gaining the advantage [over Fiat] in the race to acquire its European divison by offering to plug a short-term funding gap.

Lord Mandelson said he would seek an meeting as soon as possible with Magna to secure “cast iron guarentees” about the future of Vauxhall’s 5,000 jobs in the UK. He has already met Magna bosses face-to-face to secure assurances they will maintain production in the UK, but accepts jobs will be lost because of GM Europe’s excess capacity.

The global dimension of regional problems

The complexity of such deals unfolds as the public learns of key players around the world. In England, the story is how to protect jobs on Merseyside and Luton plants.

In Germany, according to the usually well-informed Der Speigel

The future of troubled carmaker Opel has become a key political issue in Germany as election campaigning begins. Many politicians favor a proposal by the Austrian-Canadian auto parts supplier Magna, but the plan involves massive risks …

The regional struggles have themselves been heavily influenced by decisions in America over the future of the extremely ailing parent company General Motors which is widely reported to be days away from filing for Chapter 11 bankruptcy.

GM, which has lost nearly $90 billion since 2005, is expected to file bankruptcy in U.S. District Court in New York, where rival Chrysler LLC is undergoing a court-ordered restructuring. President Barack Obama also plans to address the nation Monday on GM’s planned court restructuring.

Clearly, deadlines in Europe are connected with an Obama rescue plan in the States. His political strtegy itself is struggling to deal with political opposition.

Back to Magna

LWD has kept an eye on the happenings at Magna International since 2007.

Our earlier interest focused on the attempt by Magna to take over Chrysler, and the potential influence of Magna’s backing from Russian billionaire Oleg Deripaska.

So the global reach of the story being discussed in pubs in Luton and Liverpool now can be seen to extend to America and Russia.

What happens next?

Watch out for more interest in Magna’s rather unusual corporate governance arrangements.

Mr Stronach emigrated to Canada in the 1950s, and built up a successful auto-business. One of its interesting features is its Governance structure. According to the company web-site,

In 1971 Mr. Stronach introduced his management philosophy, known as Fair Enterprise, to Magna. Fair Enterprise is based on a business Charter of Rights that predetermines the annual percentage of profits shared between employees, management, investors and society, and makes every employee a shareholder in Magna. These rights are enshrined in a governing Corporate Constitution

These considerations may not have been as important as the financial arrangements being brokered at preseent, but may well find favour among the European players in this complex matter.