Those involved in corporate scandals say, “I knew what I was doing was wrong, but…”
In corporate management, while spectacular success stories attract attention, there is no end to the reports of scandals and frauds. Today, in particular, while the importance of compliance and governance is being emphasized, there are still cases of scandal, due to both intentional causes and negligence or ignorance.
Notably, some companies repeat scandals twice or three times instead of once. What are the factors behind this?
As a result of my own interviews with people involved in corporate scandals and literature surveys, the people involved often said, “I knew it was not right, but I couldn’t disobey.”
In other words, rather than perceiving it as, “I didn’t know it was a bad thing,” or “I thought this much would be okay,” there was a structure within the organization that prevented action even though they knew it was not right.
For example, a Japanese auto manufacturer hid for many years a large number of customer complaints that led to a recall. This resulted in an accident caused by a faulty brake, and the scandal was revealed. Despite developing into a social problem, the company continued to cover it up and eventually caused a fatal accident.
In these cases, it is important to note that the cover-ups have become routine. On-site inspections by the Ministry of Transport (then) discovered that employees deliberately hid inconvenient materials, but at the time, they were not aware that this was a cover-up. The “norm” within the organization, so to speak, paralyzed ethics.
This is often referred to as “corporate culture” as well as “the way we do things around here” and each organization has its own way of doing things, and when it becomes common practice, even wrongdoing can be justified.
I coined the term “management physics,” which refers to the corporate norm sublimated as a kind of physical law that transcends group psychology. The word “physics” may sound a bit grandiose, but like the natural providence of water flow from high places to low places, dynamics would exist within a company that guided certain behaviors, for better or worse.
The key to innovation is the very process of repeated challenges
In fact, results of surveys on scandals show that companies do have a sense of crisis and an awareness of prevention regarding scandals. I think the reason why scandals still occur is because there is a kind of pressure within organizations that tolerates or cannot eliminate scandals.
This concept of management physics is also relevant to issues related to innovation. In fact, it is not necessarily true that companies unable to innovate are neglecting their efforts.
On the contrary, previous research has revealed the shocking fact that companies that achieve outstanding business results (high-performing companies) are more likely to fail in innovation. This is also known as the “innovator’s dilemma” and has become a serious and important research issue in corporate innovation research in recent years.
Originally, the concept of innovation was based on the explanation of the mechanism of the capitalist economy by Joseph Schumpeter, one of the leading economists of the 20th century, that production activities by economic entities called companies bring dynamism to the capitalist economy. In short, this idea originated in economics.
One of the most famous applications of this approach to corporate management is Peter Drucker’s 1985 book Innovation and Entrepreneurship. Simply put, this book asserts that unless innovation is pursued in corporate management as well as in the macro economy, growth can never be achieved.
Since that book was published, in the world of business administration there have been some interesting arguments about corporate innovation. They seem to be very clear in some ways, while also getting to the point. Here I will introduce two of them.
First, Rosabeth Moss Kanter (1983) explained that the first step in creating the conditions for a company to produce innovation is to undertake innovation. Innovation cannot be produced by simply developing existing systems. Innovation can only be realized by pursuing the creative disruption of existing systems.
Akihiro Okumura (1986) stated that corporate innovation is a process through which a company first introduces innovation into its management and gradually becomes a company capable of implementing innovation by learning various things from the process of continuing innovation.
What they have in common is that innovation is a series of challenges, and an attitude of continuing without fearing failure is required. It is similar to learning to ride a bike: no matter how many times you fall, you just keep pedaling.
However, the factors preventing us from taking on such challenges also appear to be shaped by corporate culture and management physics. Material structures can be destroyed, but changing invisible things like culture and dynamics is extremely difficult. This would be one of the most important issues in modern corporate management and business administration.
Management is a corporate activity that is an extension of our lives
So, what is the meaning of the Japanese term “経営” (management) in business administration in the first place?
In the Four Books and Five Classics, Chinese Confucian texts from the 5th-3rd centuries BC, the phrase “経之営之” (to organize it and to build it) is found. As for the meaning, it appears to have been a phrase that generally suggested the following.
There is a vacant lot in front of you where you plan to build a house to live in. If you build a roof with four pillars and secure it with walls on all sides, you can at least keep out rain and night dew, but it is not a good idea to just build a house randomly. You have to consider conditions such as ventilation and sunlight.
What people at that time valued was the four cardinal directions. First, you put up a stake in the east, where the sun rises. Next, you erect a second stake in the opposite direction and tie them with ropes to form an east-west line (called longitude or “経”). After that, the four directions are determined by setting up a north-south line (called latitude or “緯”) that crosses the line. In other words, the origin of the character “経” in “経営” was longitude, expressing directions.
In addition, even land that appears flat at first glance can be uneven, and when it rains, water may flow into the house, so you need to dig a ditch around the house. The construction of these drainage ditches was called “営.”
Thus, the term “経営” has changed from its original meaning of taming the wilderness and make houses and fields to handling work efficiently.
Namely, in light of its etymology, it is no exaggeration to say that management does not merely refer to corporate activities; it also refers to comprehensive activities that build daily life.
From this point of view, management can be considered not something unique to entrepreneurs, but rather an extension of our lives. For example, household management is also a kind of management. If rice is expensive, you eat udon noodles or bread instead; the management is achieved through accumulated daily judgments.
In this sense, the discipline of business administration is not preceded by theory, but requires the actual phenomenon of corporate management. Rather than merely pursuing theory, we are expected to learn from actual corporate activities and put that learning into practice.
A company is both an economic entity that pursues profit and a management entity that conducts business activities to achieve that goal. So that companies, which can be called public entities of society, can contribute broadly to society and help build a prosperous and sound economic society, I wish to continue pursuing the elucidation of management physics as a research theme.
* The information contained herein is current as of June 2025.
* The contents of articles on Meiji.net are based on the personal ideas and opinions of the author and do not indicate the official opinion of Meiji University.
* I work to achieve SDGs related to the educational and research themes that I am currently engaged in.
Information noted in the articles and videos, such as positions and affiliations, are current at the time of production.
