Magazine article Risk Management

Ethics and Compliance at Honda of America

Magazine article Risk Management

Ethics and Compliance at Honda of America

Article excerpt

In a corporate environment rocked by scandal, shareholder skepticism and a rising tide of D&O lawsuits, many executives are scrambling for cover, leaving their risk managers to ensure that their company does not become the next Enron, WorldCom or Arthur Andersen. But how? For manufacturing giant Honda of America, it is as simple as doing the right thing.

Honda of America Manufacturing, Inc. (HAM), is a subsidiary of the Tokyo-based Honda Motor Company, Ltd., which is Japan's third-largest auto maker and the world's leading motorcycle manufacturer. Honda's power products division also makes lawn mowers, snow blowers, portable generators, outboard motors and other commercial and residential machinery. In 2002, Honda enjoyed a 26 percent increase in sales, and projected to increase them by another 14 percent in 2003. In terms of net sales and revenues, Honda went up nearly 14 percent in its last fiscal year, due in large part to strong automobile sales in Japan and North America.

That is where HAM comes in. Based in Marysville, Ohio, HAM is Honda's chief manufacturing operation in North America and administrates four production facilities--two auto-making plants, a motorcycle plant and an engine plant. Honda's surging sales have forced HAM's facilities to run at capacity, and so far, the company has managed to keep up with its impressive production demands. Oftentimes, such conditions can tempt employees, managers and directors to cut corners, especially when they think nobody is looking. It is a pitfall that can tumble any company, large or small. HAM is no exception, which is why it has devoted substantial resources, time and man-hours to a companywide Legal Compliance and Business Ethics program designed to make sure that if a potential corporate misconduct problem arises, the company can identify it and address it before it explodes.

The program has been a resounding success for HAM, which has also exported it to its many affiliated suppliers and distributors in an effort to hedge corporate misconduct risks away from any of HAM's facilities. It is an outstanding example of the power of proactive risk management, but to the casual observer, it seems to do little more than prohibit unethical or illegal behavior and require that such activities are reported to the corporate compliance office should they arise. But it is more than just that; it is a unique blend of corporate culture and risk management that with a little bit of tweaking can be made to fit any company, regardless of its size, scope or operations.

A Matter of Principle

A major part of HAM's compliance and ethics program is the company's egalitarian culture, which sets it apart from most North American operations. At HAM plants, as with all Honda production facilities, all employees wear a uniform and are addressed as "associates." They eat in shared cafeterias, there are no private offices, and there are no obvious signs of status, such as reserved parking spots. Managers can be found on the production floor, and open-planned offices have no obvious design elements to display high ranking workstations. The key is to promote accessibility across the company by removing physical and social barriers, thereby eliminating the natural intimidation employees often feel when they wish to speak with their managers.

This culture is an extension of Honda's corporate philosophy, which has remained unchanged since it was written in 1956 by the company's founders, Soichiro Honda and Takeo Fujisawa. The main tenet is to respect the individual, stressing that associates should be encouraged to think creatively, that they should be treated fairly, and that associates should build a bond of trust among themselves. Respecting the individual also defines Honda's relationship with those it does business with. Everything Honda does must exceed the expectations of its customers, its business associates must be dealt with fairly and honestly, and the company must remain sensitive to the needs of the communities in which it does business. …

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