Execution After a Scandal — First Response, Disclosure, and Recurrence Prevention

Once a scandal has happened, the event itself cannot be undone. But the scale of the damage changes greatly with what is done afterwards. First response, disclosure, recurrence prevention — the quality of these three acts of execution divides the outcomes of one and the same mistake. This piece sorts out the execution that management bears "after" a scandal, returning to the duty of care under the Companies Act and the monitoring provisions of the promotional-information guidelines. Here, too, we see why the materials-review records kept in normal times tell in a crisis.

01Half Is Decided in the First Response — Grasping the Facts and Stopping the Spread

Whether a scandal response succeeds or fails tilts heavily within the first few days. What must be done in the first response narrows to two things: grasping accurately what happened (fact-finding), and stopping the damage from spreading any further (containment). If non-compliant materials have already gone out, recall and suspension of use come before the search for causes. The argument over who is to blame can wait until after.

The greatest hazard here is concealment and downplaying. The wish "not to make a big deal of it" breeds a second scandal. In the Daiwa Bank shareholder derivative suit, beyond the loss itself, the delay in the response and the inadequacy of disclosure worked to weigh more heavily in the assessment of the directors' breach of the duty of care. The fact of having hidden something costs the most later. The first response is the juncture that tests whether one can resist this temptation and look the facts in the eye.

02Disclosure — Information Disclosure Is Tested Precisely in a Crisis

Disclosure is not a binary of reveal or withhold. When, how far, and to whom you disclose — that design governs the speed of restoring trust. The disclosure principle of the Corporate Governance Code (Basic Principle 3) is tested less in routine earnings disclosure than in a crisis. For the moment you try to make an inconvenient fact look small, disclosure turns into a tool that erodes trust.

Misjudge the disclosure and you advance to a stage where what is questioned is "the hiding," not the event itself. The decision to withhold weighs more heavily than the fact of having put out materials that should have been recalled. The reach of shareholders' right to demand explanation and information from management is taken up in The Capitalist's View, Vol. 6; disclosure is also the execution that answers that demand before it is even made.

03Recurrence Prevention — Change the People, or Change the System?

After a scandal, it is tempting to bring down the curtain by punishing the person in charge. But change the individual while the same structure remains, and someone else will cause the same accident. The heart of recurrence prevention is not a hunt for the culprit but a structural analysis of the cause. Why did that material pass review? Were the evaluation metrics skewed toward sales? Had monitoring become a mere formality? Only when you reach as far as rebuilding the internal controls themselves can it be called recurrence prevention.

When you rebuild the structure, the inside logic alone leaves blind spots. That is why an independent eye from outside is needed. Why the independence of outside directors is questioned, and how that mechanism works, is taken up in detail in The Board's View, Vol. 4. Recurrence prevention that does not change the system is no more than a reservation for the next recurrence.

04Records Kept in Normal Times Become Evidence in a Crisis

Documents thrown together in a panic after a scandal breaks are not believed. What tells in a crisis are the records built up, matter-of-factly, in normal times. Section 2-5 of the guidelines on promotional information activities requires that the appropriateness of materials be monitored continuously and that the record be kept. This record becomes the evidence of accountability that shows, in a crisis, that "we were doing what we were supposed to do." The history of review records, deviation handling, and monitoring is the backing for having discharged the duty of care.

So for the materials reviewer, the review record for each single page is not drudgery. A record is not defense; it is the company's insurance. Keeping the review process on file in normal times protects management in a crisis. The reviewer is, even before a scandal occurs, already assembling the evidence for the cleanup that would follow. Once you are conscious of this stance, you can explain in the language of management "why we keep records this far."