Japan Inc scandals widen as Toray admits cheating

TOKYO (Reuters) - Japan's Toray Industries Inc 3402.T on Tuesday revealed 149 cases of quality data falsification at a materials-making subsidiary spanning eight years, in the latest quality-assurance scandal to hit a Japanese manufacturer.

The world’s largest maker of carbon fiber composite materials said the cheating involved products including tire-strengthening cords sold to 13 clients by Toray Hybrid Cord Inc. A broader probe into possible wrongdoing across the group was ongoing.

Toray did not name any affected customers but ruled out U.S. aircraft maker Boeing Co BA.N, for which the Japanese company is a major supplier of carbon fiber used in passenger jets, and Uniqlo parent Fast Retailing Co Ltd 9983.T, which uses its products in its best-selling Heattech clothing line.

Japanese companies are facing growing pressure to disclose quality-assurance failings after widespread data falsification was uncovered at Kobe Steel Ltd 5406.T.

Toray said its subsidiary became aware of its problems in July last year, and the group learnt of them in October. It only decided to publicly disclose the cheating after rumors appeared earlier this month in an anonymous online post.

“There were no legal violations or safety problems; this was between us and our customers, and so there was no need to disclose it,” Toray President Akihiro Nikkaku told a news conference.

The internet post forced the company to “give a proper explanation before rumors spread”, Nikkaku said, adding that even if similar cases were found in the future the company would not be required to make them public.

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The comments are likely to fuel concerns about Japanese manufacturers’ governance and their commitment to stamp out cheating.

Last week Mitsubishi Materials Corp 5711.T admitted that it may have sent products with falsified data to scores of customers, and possibly continued to ship these products for months after the wrongdoing was discovered.

Automakers Nissan Motor Co Ltd 7201.T and Subaru Corp 7270.T have also been hit by compliance scandals.

The admissions threaten to damage trust in Japan’s manufacturing industry at a time of growing competition from its Asian neighbors such as China and South Korea.

Toray’s shares plunged more than 8 percent following the announcement and closed down 5.3 percent in a flat broader market.

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While Toray is not among the most-recognized Japanese brands internationally, its strong, light carbon fiber materials are used in Boeing’s 777X passenger jet and 787 Dreamliner.

The company is represented at the heart of Japan’s conservative corporate establishment, with former president Sadayuki Sakakibara heading the Keidanren business lobby.

Toray said it was in the process of notifying clients about the falsification and had not heard back from them about performance or safety issues with the fiber products used to strengthen tires and other industrial goods.

The affected customers were mostly in Japan but included at least one in South Korea.

Two quality control managers had led the falsification, motivated partly by pressure to meet product delivery targets. The two managers responsible for the cheating have been transferred to different positions.

Toray found the cases after an in-house survey pointed to the malpractice, prompting an internal investigation which Nikkaku said he hoped to complete by March next year.

Combined revenue of the 149 cases amounted to 150 million yen ($1.35 million) and would not have a big earnings impact, Nikkaku said.

($1 = 111.2400 yen)

Reporting by Sam Nussey and Makiko Yamazaki; Editing by Stephen Coates