Strategy Meets Governance: Toyota Moves to Downsize Board

Governance is one of those management factors that can appear to be an afterthought until a crisis hits. Then, the questions fly about who was paying attention and why they didn't act. Toyota enjoyed a reputation for decades as one of the world's best managed companies. The last couple of years have brought a spate of quality and reliability problems as well as softer than expected sales. Now, the relatively new chief executive, a member of the Toyoda family, has announced plans to halve the size of the board. Speed of decision-making is one clear goal, though consolidation of power could well be another. The net effect is to acknowledge that without effective oversight and rigorous challenging of management decision-making, complacency, silos and 'warlord-ism' can hobble even a great company.

Chester Dawson and Norihiko Shirouzu report in the Wall Street Journal:


"Toyota Motor Corp. will unveil a long-term strategic plan on Wednesday that will cut sharply the number of board members, a move that has renewed long-simmering tensions within the Japanese auto maker's management.

More broadly, the blueprint for the decade will provide one of the first public glimpses of President Akio Toyoda's management style and goals.

The plan, tentatively dubbed 2020 Global Vision, marks a new chapter for the world's largest auto maker after an unprofitable period helped propel the family scion into his current role in 2009, and follows the fallout from massive recalls that consumed Mr. Toyoda's first two years as president.

Toyota has declined to provide any details about the new strategy prior to its formal announcement. But people familiar with the plan say that one hallmark is a proposal to roughly halve the number of board members from the current 27. Mr. Toyoda's support base within the company views the move to slim the board as an attempt to speed decision making, but his detractors view the plan as an effort to consolidate power.

One current board member recently fretted that the auto maker's best days might be behind it. "Do you think Toyota is past its prime? It feels like that these days," the executive said.

The board member added that the success of charismatic chief executives such as Ford Motor Co.'s Allan Mulally and Apple Inc.'s Steve Jobs provides hope for a decisive turnaround at the Japanese company—if Mr. Toyoda has the managerial chops to pull it off. "But is Akio a Mulally? Is he a Steve Jobs?" the executive asked rhetorically, adding that the new plan would serve as a good indicator.

Toyota officials say privately that Mr. Toyoda broached the idea for the new plan as a way to allow for more substantive discussions at the company's highest levels. It follows a decision by Honda Motor Co. on Feb. 22 to cut the size of its board to 12 operating officers from the previous 20 executives for similar reasons of speed and efficiency.

Company officials say Toyota's new vision will also formally incorporate emerging markets such as China and India into the car maker's long-term strategic planning goals.

The plan will be the company's fourth so-called vision statement to be released since the mid-1990s—documents that, while often opaquely worded, have proven significant in laying out the company's direction in following years. The 2010 vision plan, which was announced in 2002, provided clues to the company's capacity buildup in Europe and North America later that decade. "Toyota will shift to a structure supported by three profit bases—Japan, North America and Europe," it said.

As officials finish the latest statement, they will need to address a number of fresh challenges at home and abroad, including a shrinking domestic market and a strong yen against the dollar, which makes the company's exports from Japan less competitive overseas. In the U.S., Toyota's recall of millions of vehicles has provided an inroad for rivals such as Hyundai Motor Co. and a revitalized Detroit Big Three. And in China, now the world's biggest market, Toyota trails its major global competitors.

The coming plan will displace the current 2020 Global Vision, which was announced in 2007 two years after Mr. Toyoda's predecessor became president. That follows a recent pattern of vision statements coming soon after a change at the top of the company, a tradition that began with the initial 2005 vision plan unveiled in 1996.

Mr. Toyoda, who turns 55 years old in May, became the youngest head of the auto maker since his grandfather established the company in 1937. Since then, he has kept a low profile with a few notable exceptions, such as his testimony before the U.S. Congress a year ago when he vowed to redouble Toyota's safety efforts amid the recall of millions of vehicles world-wide.

Toyota's previous strategy plans have highlighted vague concepts such as improved corporate citizenship and greater delegation of responsibility to local operations outside Japan. Likewise, company officials say the coming statement will be short on specific numerical targets and results-oriented commitments by senior management.

That is likely to disappoint investors and other Toyota watchers, who say the auto maker needs a detailed plan to instill faith in management and restore lost luster to its brands.

"I'd like to see something like Nissan's [plan] with a lot of detailed financial targets and management goals, but that's not Toyota's style" said Christopher Richter, a senior analyst at Credit Agricole Securities Asia in Tokyo, referring to Nissan's 1999 effort to recover profitability. "I'm keeping my expectations low, but hope to be surprised."

One person knowledgeable about Toyota's new board structure said it has stirred up considerable controversy within the upper echelons of management.

This person said the boardroom maneuver is viewed by some insiders as a naked political play and the latest salvo in a struggle for influence over company operations pitting Toyoda family and nonfamily factions. Allies of Mr. Toyoda's immediate predecessor, Katsuaki Watanabe, have said the former president could lose his board seat and title of vice chairman in the shake-up—though a formal announcement might not be made for a few weeks. Mr. Watanabe couldn't be reached for comment.

Toyota's first vision plan was an outgrowth of trade tension with the U.S. during the mid-1990s, when Toyota and other Japanese auto makers narrowly averted sanctions by pledging to invest more overseas and boost imports of auto parts.

Then-President Hiroshi Okuda announced his 2005 vision plan in January 1996. A person familiar with that document says it rapidly evolved into an operational strategy aiming to retool the auto maker over the following decade by relying less on exports and more on overseas factories.

That plan morphed into the 2010 vision plan that was released in 2002, which aimed for 15% global market share by the early 2010s, an ambitious jump from the 10% mark Toyota had at the time. But the company's consolidated group market share peaked at nearly 13% in 2008, according to IHS Automotive, a consultancy that tracks auto makers