Japanese Company Recalls Water Heaters

Reviewed by Hitoshi URABE

Article:
Japanese Company Recalls Water Heaters
(AP) MSN Money
http://news.moneycentral.msn.com/provider/providerarticle.asp?feed=AP&Date=20060718&ID=5876785

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Here is another example of poor corporate management in a number of ways that could find a place in the pages of textbooks for scrutiny at corporate management classes in business schools, once the whole case settles down.

Paloma is a group of companies specialized in manufacture, sales, and service of various sorts of gas heaters including those for home use. It uses its own brand as well as OEMs to other outlets including gas companies which sell the heaters in their own brands. It has operations also in the U.S. The company was founded by the grandfather of the current chairman, and his son is now the president of the company. It is still an unlisted family-owned company.

Last week, the Ministry of Economy, Trade and Industry released the results of their investigation that 15 people had died of carbon monoxide poisoning caused by Paloma's water heaters between 1985 and 2005, without stating who might be responsible for the incidents. Immediately following the release, Paloma Co. and its manufacturing arm, Paloma Industries Ltd. held a press conference, claiming that the incidents were not caused by defects of their products but by illegal modification of a safety device, thus strongly denying any responsibility of the company.

In accordance with the instruction from the authorities, Paloma, has conducted its own investigation, and within days, came up with more cases, The current figure stands at that there have been 27 reported cases of carbon monoxide poisoning from the gas water heaters, in which 20 people have died and more than 30 people have been injured. Furthermore, the company had to admit that although in some cases the heaters' safety function was nullified by bridging certain terminals on a circuit board with wires, there were cases, said to be about half of the total, were caused due to aging of the equipment.

The company flipped its stance upon the revelation of the new facts, and issued a recall for some 260,000 gas water heaters made between 1980 and 1989. The president of the company admitted that the company was partly to blame for the incidents.

The investigation the Ministry of Economy, Trade and Industry to reveal the sequence of incidents was triggered by the move by the police, but police is clearly not the one to be commended. It was an elderly couple living in the remote Prefecture of Shimane and their strong faith that brought the sequence of events into daylight.

Ten years ago, the son of the couple, age 21 at the time, was living alone in an apartment in Tokyo, where one morning he was found dead. The local police apparently told the parents that their son "seemed to have had a heart attack." After ten years of mourning over the son's death, in March, the parents, with a hint from the son's friend, inquired the medical examiners' office for anything they could learn about their son's death. To the couple's astonishment, they were told the postmortem report processed ten years ago clearly stated the cause of death being extremely high level carbon monoxide poisoning. The parents asked the police to review the matter, but had already run out of the five-year statute of limitation for the probable crime of fatal professional negligence, which, nevertheless, led to the investigation by the Ministry in charge. (The police, however, is looking into more recent cases, including an incident where a 28-year old died last November.)

This will not only make a good study case on corporate governance, but should also be made an opportunity to review the basics of public service, its fundamental objective in looking after the safety of the people.