Published: 17 Oct 2017

The deepening scandal at Kobe Steel over falsified data relating to the quality, strength and durability of its steel brings into sharp focus the need for robust operational governance, assurance and improvement.

CQI CEO, Vincent Desmond says: “It is too early to say what the senior leadership of Kobe Steel knew, but this intensifying scandal reminds us once again that operational governance failures pose a serious risk to corporate reputation, market capitalisation and the ongoing commercial viability of an enterprise.

“Whilst the board has ultimate responsibility, there is also a clear role for investors and regulators who must insist on effective mechanisms to ensure that governance exists outside of the boardroom. It is essential that the writ of the board is followed and that employee whistle-blowers are empowered to highlight governance failures to the highest levels of an organisation.”

The Kobe Steel scandal comes just a week after the Chartered Quality Institute and UK’s Institute of Directors launched the 2017 Good Governance Report which for the first time recognised the essential need for solid operational governance arrangements to ensure the board’s intent is realised correctly.

Whilst the board has ultimate responsibility, there is also a clear role for investors and regulators who must insist on effective mechanisms to ensure that governance exists outside of the boardroom. It is essential that the writ of the board is followed and that employee whistle-blowers are empowered to highlight governance failures to the highest levels of an organisation
Vincent Desmond, CQI’s CEO

The debate around operational governance is becoming global. Florian Kohlbacher, director of the Economist Corporate Network for North Asia, told the BBC: “focussing on costs and profitability won’t be sufficient as future strategies,” and expects, “companies to have a closer look at their operations and make sure they amend any problems before they turn into something major.”

CQI CEO, Vincent Desmond continues: “Our biggest companies are now operating across borders in far flung locations, with extended supply chains and outside the sight of the boardroom. For this reason, the CQI is a leading participant in the new ISO project to develop an international corporate governance standard which has strong operational governance at its heart.”