Toyota: an Example of “Good” Corporate Governance

Topics: Corporate governance, Business ethics, Ethics Pages: 6 (1896 words) Published: May 10, 2008

Corporations the world over have been publicly criticized for improving their firm’s bottom line at any moral or social cost. Ethics essentially “refers to the issues of right, wrong, fairness and justice.” Clearly, examples such as Enron, WorldCom, and even Conrad Black tested society’s views on sound ethical business and the link to what society sees as “good” governance practices. Although the controversies involve issues matched in variety only by the types of companies, they all virtually involve some form of abuse of stakeholders trust. These cases are not representative of the entire spectrum of today’s business environment; in fact, there are a number of companies whose competitive advantages are based on “good” corporate governance practices – namely stakeholder involvement. As a result, I have chosen to present and explore in this essay the practices of one such company: the Toyota Motor Corporation while highlighting its “good” corporate governance principles.


Toyota is a global leader in automotive sales, technology and production while also retaining one of the world’s most recognizable and highly valued brands. At the heart of their success is the innovative and groundbreaking production methods made possible by the company’s recognition of the value of employee empowerment. Employee involvement is defined as “consist[ing] of a variety of systematic methods that empower employees to participate in the decisions that affect them and their relationship with the organization.” At Toyota, the company has employed these proven techniques of co-determination to encourage employee, and supplier involvement in their decision making process, since these practices “help improve both the ability and attitude” of stakeholders. In fact, one of the guiding principles of Toyota requires the company to “foster a corporate culture that enhances individual creativity and teamwork value, while honouring (sic) mutual trust and respect between labor (sic) and management.”

2.1 Employee Involvement
Toyota is renowned for utilizing autonomous work groups that constantly generate innovative results to both processes and product issues. The use of these groups defined as “teams of workers without a formal, company-appointed supervisor who decided among themselves matters traditionally handled by a supervisor.” The use of these management techniques not only fosters innovation, but improves the quality of products as well. Once this structure is combined with the “set of organised, well integrated, and continuous activities involving both managers and workers” that defines Toyota’s “Total Quality Management System,” the result is consistent recognition of vehicles with the highest initial quality by various rating associations.

2.2 Suppliers
Toyota’s approach extends beyond treating employees with respect, but also looks to develop “an atmosphere of long-term trust and of a partnership based on mutual prosperity” with its suppliers, demonstrating their commitment to Total Quality Management. This commitment is partially attributable to the Japanese business practice of clients and suppliers purchasing equity positions within their respective companies, however this practice is neither the sole, nor the primary cause of this approach. More accurately, this approach is attributable to the company’s commitment to the principles of stakeholder management; the company considers the suppliers to be morally entitled to ethical treatment considering their roles as stakeholders within the corporation.

2.3 The Natural Environment
This relationship with suppliers and employees has allowed Toyota to fulfill their commitment to a third stakeholder: the natural environment. Toyota developed a first mover advantage into the field of “green” vehicle technology. The relationship with their employees, who often are their customers as well, aided Toyota in recognizing the need for less...
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