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Lean, Credit Ratings and Respect for People

August 17, 2011


With all of the recent talk about the United States’ credit rating downgrade, you may not have remembered that Toyota’s credit rating was downgraded back in the late 1990s and early 2000s. During this period Moody’s downgraded Japan’s bond rating from AAA to AA1. They in-turn downgraded Toyota’s long-term bond rating. The startling part is why.

Hiroshi Okuda

Regarding Toyota’s lowered rating, the explanation that Moody’s offered was this: “Toyota is fixated on lifetime employment. Maintaining this system poses a risk to the future operations of the company.”

Toyota’s then President Hiroshi Okuda asked “A corporate bond rating is the ability to repay borrowed money, isn’t it? Toyota can pay all its bills back tomorrow. In the short-term, we keep excess cash on hand rather than turn to money management techniques so we’ll have liquidity just in case. If we can repay everything tomorrow, it goes without saying that we are triple-A.”(1)

Lifetime employment is a tenant of the Toyota Production System (TPS). It allows them to develop employees. Long-term employment shows emphatically the ethos of “Respect for People.” It is a little ironic that American companies tend to think having lifetime employees is a liability. Just think about all the knowledge that Toyota has built up over the years, the “Silent Knowledge” or things that haven’t been written down or even put into words. This allows them to continue to build on lessons learned and best practices. I had one client explain it to me this way, he said “We don’t have employees with 30 total years of experience; unfortunately we have employees with one year of experience 30 years in a row.”

While we may not fully understand the total impact of Standard & Poor’s decision to downgrade the US Governments ability to repay its debts, as lean practitioners we do know the value of “Respect for People.”

By the way, Moody’s and Fitch did not lower the US Governments rating (yet).

P.S. What happens if S&P and Moody’s merge? We may all be Moody & Poor. (Just a laugh)

Reference:

(1)   The Toyota Leaders: An Executive Guide – Masaaki Sato

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