Toyota Case Study

TOYOTA CASE STUDY

SEXUAL HARASSMENT IN THE WORKPLACE?

ALLEGATIONS

On Dec. 6 of last year, Sayaka Kobayashi sent a letter by e-mail to Dennis C. Cuneo, senior vice-president of Toyota North America. The letter gave a detailed account of alleged romantic and sexual advances she had endured for three months at the hands of her boss, Hideaki Otaka, the chief executive of Toyota Motor North America Inc. (TM

"Nowadays, I come to work with anxiety and pray that Mr. Otaka will not ask me to accompany with him to another lunch, another dinner, another business trip," wrote Kobayashi, who provided a copy of the letter to BusinessWeek. "I would like to seek advice from you on the issue that I feel helpless."

How did Cuneo respond? According to a sexual harassment lawsuit Kobayashi filed against Toyota and Otaka, Cuneo told her that he would discuss her letter with Otaka -- but that he didn't want to offend him. So he said he planned to inform Otaka that it was Kobayashi's boyfriend who was upset, rather than Kobayashi herself. On Dec. 9, Cuneo e-mailed Kobayashi, noting that he had met with Otaka but "didn't go into any detail with him." He then recommended in his e-mail that Kobayashi, who was Otaka's executive assistant, meet privately with him to air her concerns.

Kobayashi's suit, filed on May 1 in New YorkState court, offered rich fodder for headline writers around the world. "Oh, What A Feeling!" blared the New York Post, reprising Toyota's onetime advertising tag line as it splashed the groping allegations on its front page. Yet largely absent from accounts of the salacious accusations is an equally astonishing story: how the giant carmaker, which typically does so much so well, bungled the handling of Kobayashi's concerns when she first raised them with the company. It is a tale that reflects the struggles that foreign executives sometimes have with U.S. sexual harassment laws -- and that all companies have when the alleged harasser sits in the corner office.POLICY REVIEW

The lawsuit was just filed, and Kobayashi has not proved any of her claims. But Toyota itself now seems to have recognized that significant change is in order. In a statement issued on May 8, it announced the creation of a task force headed by former U.S. Labor Secretary Alexis Herman to review its policies and practices on harassment and discrimination. It is also ordering additional training for executives "to enable them to better recognize, prevent, and handle any instances of inappropriate behavior."

The executive who first fielded Kobayashi's complaint has been relieved of duties supervising human resources, according to a Toyota spokesman. Toyota also replaced Weil Gotshal & Manges, the New York firm that initially advised it on the matter, with Morgan, Lewis & Bockius in Philadelphia. (Weil Gotshal did not return calls seeking comment.)

As for Otaka, Toyota says he has "voluntarily" resigned his post and is on leave from the company. Toyota declined to make Otaka, Cuneo, or others who dealt with Kobayashi available for comment. In the company's May 8 statement, Otaka says he expects to be "fully vindicated" in the harassment lawsuit. Efforts to reach him at his home were unsuccessful.

Kobayashi claims that if matters had been handled differently, the lawsuit would never have happened. Speaking to BusinessWeek in her first extensive interview since filing the lawsuit, Kobayashi, 42, was soft-spoken, composed, and presented herself as a reluctant plaintiff. Initially all she wanted, she says, was to be moved to another position. "I was in agony," she says, "and to get out of that, that was enough for me."

Still employed by Toyota, Kobayashi is currently on medical leave because of what she says is heart trouble. Toyota representatives declined to comment on most of the specific allegations in her lawsuit, but a spokesman notes that Kobayashi received a promotion at the end of 2005 and says that "her issues of employment have been addressed."

Although raised in Japan, Kobayashi came to the U.S. in 1988 and earned a journalism degree from EasternMichiganUniversity. She began her employment with Toyota in Michigan in 1997, and in 2003 transferred to New York for a job in the corporate planning department of Toyota Motor North America. Occupying a single floor in a midtown Manhattan office building, the department serves as an administrative nerve center, helping coordinate the many components of Toyota's American operations.

For two years, Kobayashi says, she had almost no contact with Otaka, now 65, the head of the office and one of Toyota's most senior U.S.-based executives. Then, in the spring of 2005, a human resources official told her that Otaka, who began working for Toyota in Japan in 1965 and once served on the parent company's board, had asked that she become his executive assistant.

"My reaction was, 'What?"' says Kobayashi, whose work at the time involved helping set up board meetings and other events. But she was taking business school classes in the evenings in pursuit of an MBA and decided that the new job presented "an opportunity for me to grow in a different area." She accepted the assignment in April, 2005. The problems, she says, began a few months later.

On Sept. 2, Otaka personally delivered two dozen red roses to Kobayashi for her birthday, she alleges in her complaint, prompting "quizzical expressions" among her co-workers. Kobayashi also claims that Otaka, who is married, asked her to accompany him on a business trip, a request she felt she did not have the option of refusing. On Sept. 6, during their first trip together, Otaka summoned Kobayashi to his hotel room in a Washington (D.C.) Marriott at about 10 p.m., according to the complaint. Although uncomfortable with the request, Kobayashi changed back into business clothes before going to Otaka's room.

After engaging in "inappropriate personal conversation," Otaka "suddenly approached Ms. Kobayashi, forcibly grabbing her body and attempting to engage in sexual contact with her," the complaint alleges. Although she broke free and told Otaka she wanted only a professional relationship, he gestured toward the bed as she was leaving and said, "You can sleep over here tonight if you like," the complaint continues. Later, in her letter to Cuneo, she wrote, "I had to go run on a treadmill that night to shake off the confusion and filthy feeling."

Over the next two months, Otaka continued to lavish unwanted attention on Kobayashi and to pressure her to join him on business trips to Miami and Detroit, Kobayashi claims. In mid-October, he left a box containing a garnet necklace on her desk, along with a greeting card asking her to have lunch with him. "Take time to be friendly -- it is the road to happiness," said the printed portion of the card, which was framed by flowers and hearts. Inside, Otaka wrote in Japanese: "I would like to speak to you more. Let's go to lunch on Wednesday."

A month later, Otaka had Kobayashi accompany him to lunch and a Van Gogh exhibit at New York's Metropolitan Museum of Art. Afterwards, the complaint alleges, Otaka "ordered" Kobayashi to walk with him in Central Park. "While in a secluded area of the park," the complaint says, "Otaka suddenly grabbed Plaintiff's body and forcibly attempted to engage in sexual contact with her." Again, Kobayashi, a slim exercise buff, pulled herself away, and again she informed him she did not want a sexual relationship.

Kobayashi says she views Otaka's actions as "a reflection of underlying Japanese culture, where sexual discrimination is found [throughout] society, not just in corporations." Employment attorneys say it's not uncommon to see executives of foreign companies getting tripped up by rules in the American workplace, and it's not just the Japanese. "There are some European countries where a certain degree of what we would consider over-the-line sexual harassment is more common, it's more the norm in the culture," says Wayne N. Outten of Outten & Golden LLP in New York."FEAR AND MISERY"

Throughout this period, Kobayashi says, she did not discuss what was going on with co-workers, family, or even her boyfriend, a professional magician whom she married last December. It is not her way to worry others, she explains, noting that she waited two years to tell her family about a 1992 car accident that almost led to the amputation of her foot. What's more, she adds, "I thought I said 'no' enough, so I was hoping [Otaka] would stop his behavior.... In that case, I don't have to make big issues out of it."

But going into the office each day during this period "was a nightmare," she says. "I felt like I was living in a world of fear and misery." After the alleged incident in Central Park, and with Otaka attempting to book her on trips despite her resistance, Kobayashi finally told her boyfriend what was going on. She also went to Ko Takatsu, an executive who dealt with human resources, and told him about Otaka's conduct.

There is little disagreement among employment law experts on how a company should respond when such allegations are brought to its attention. There needs to be "a full and fair investigation," no retaliation against the employee for filing the complaint, and if a problem is found, corrective action must be taken, says Jonathan A. Segal, an attorney at WolfBlock in Philadelphia who advises companies.

Certainly when the accusations involve the chief executive, matters get trickier, since the head of HR is not in a great position to investigate the boss. In that situation, Segal says, someone from outside the company should be brought in to handle the matter. Others go further, saying the board of directors should be informed of such complaints and should itself retain an outside investigator.

Takatsu took no action, Kobayashi says, but adds that he "was a very good listener" and appeared sympathetic. A Toyota spokesman says Takatsu has been removed from overseeing HR. And in its May 8 announcement the company said that if allegations of sexual harassment involve the most senior officials in any affiliate, the complaint must now be brought to the attention of the unit's board.

Kobayashi next turned to Cuneo, the No. 2 executive at Toyota Motor North America. A onetime antitrust attorney in the U.S. Justice Dept., Cuneo is a 22-year Toyota veteran who has had a wide range of responsibilities, from plant site selection to environmental compliance. His current duties include overseeing human resources, and he chairs the Human Resources Policy Group of the National Association of Manufacturers.

Although she was uncomfortable with Cuneo's suggestion that she air her concerns one-on-one with Otaka, Kobayashi says she met with him in his office on Dec. 12. The meeting did not go well. Otaka told Kobayashi that he and she both "had 'behavioral problems' they needed to correct," she alleges in her complaint, and he criticized her for not thanking him properly for his gift of birthday roses. Ten days later, Kobayashi received a scheduled promotion to "assistant manager," though she continued to work for Otaka. A Toyota spokesman says it was not unreasonable for Kobayashi's boss to ask someone in her position to meet privately, since that is a normal part of an executive assistant's job and it is important to work things out.

On Jan. 4 came what Kobayashi calls the "tipping point." Alan F. Cohen, Toyota Motor North America's general counsel, told her that he wanted to discuss various "options," according to the complaint. One idea he suggested, she says, was the possibility of her returning to school full-time. "That sounded sort of threatening to me," she says. "That was clearly a sign of Toyota trying to get rid of me." A Toyota spokesman says: "That was an option that may have been discussed with her," but "it wasn't a coercive option." Kobayashi, however, interpreted it differently. By the middle of January, she had retained an attorney.

Her lawsuit has reverberated at the highest levels. At a May 10 news conference in Tokyo, where he announced record profits, Toyota CEO Katsuaki Watanabe made a short statement on the case. The company, he said, "is taking this lawsuit very seriously, especially because we've always made every effort to prevent any and all types of harassment." By Michael Orey

SETTLEMENT

Toyota Motor Corp. said on Friday it had settled a sexual harassment lawsuit against the Japanese automaker’s former top U.S. executive. The lawsuit had threatened to become a major embarrassment for Toyota at a time when the company’s sales have been booming in the United States and it is on the verge of overtaking General Motors Corp. as the world’s biggest automaker.

Toyota said in a statement that the automaker and the employee who brought the lawsuit against former Toyota North America Chief Executive Hideaki Otaka had agreed to keep terms of the settlement confidential.

“We are very pleased to have resolved this matter in a way that all parties have agreed is fair, appropriate, and mutually satisfactory to all concerned,” Toyota Motor North America said in a statement.

Sayaka Kobayashi, a Toyota employee, had filed a $190-million lawsuit ($40 million in damages for emotional distress and injury to her reputation, as well as $150 million in punitive damages) against the automaker accusing Otaka of sexually harassing her while other Toyota executives failed to act on her complaints.Ms. Kobayashi sought at least.

Soon after the suit, Toyota formed a special task force, led by Alexis M. Herman, a former secretary of labor for President Bill Clinton, to review Toyota’s policies and procedures on harassment and discrimination. Ms. Herman heads a diversity advisory board at Toyota.

Toyota, which has said it has a “zero tolerance” policy on sexual harassment, said there would be additional training for senior executives and clearer procedures for responding to accusations of misconduct.

In the fallout from the lawsuit, Otaka, 65, was sent from New York in June to Japan to

become an auditor at the Tokyo affiliate Daihatsu Motor Co. Ltd.

Otaka was replaced by Jim Press, the first American president of the Japanese car makers U.S. operating unit.

Kobayashi, 42, had claimed in the lawsuit that Otaka repeatedly asked her to accompany him to lunches, walks in Central Park and on business trips, where he tried to engage in sexual conduct with her.

She said that her complaint to Toyota’s second-highest ranking U.S. executive had been ignored.

Toyota’s U.S. sales were up 10 percent in the first seven months of the year and the company overtook Ford Motor Co. as the No. 2 automaker by sales for the first time in July.

How Major Companies Respond to Top-Level Sexual Harassment Allegations

A Toyota Case Study

How companies resolve sexual harassment difficulties and how they publicly communicate their actions is a critical top management issue. Companies are often reluctant to publicly admit wrongdoing or to provide detailed explanations of allegations. They often employ prominent outside public figures to review their procedures in order to lend credibility to their responses. Even here, however, they sometimes turn to people with whom they have long had a relationship, which can yield public skepticism. The recent Toyota situation contains some of these characteristics.

Allegations of sexual harassment in the upper ranks of Toyota Motor North America’s (TMA) management has caused its CEO to resign his position and prompted the company to announce a set of measures to strengthen its “anti-harassment and discrimination” policies and procedures.

Without providing any details of the allegations, TMA issued a press release on May 8, 2006 that prominently noted that it is replacing top executives, launching employee training programs, and creating a “Special Task Force Headed by Former U.S. Secretary of Labor Alexis Herman to Review Its Policies and Practices Against Harassment and Discrimination.”

According to Business Week magazine, as well as other media reports, on May 1, 2006 Sayaka Kobayashi, the former personal assistant for then CEO Hideaki Otaka, filed a law suit against Toyota alleging that Mr. Otaka repeatedly sexually harassed her and that TMA’s management failed to take effective actions to stop the harassment. Indeed, the magazine reported that not only did corporate management ignore her complaints, but also that its general counsel suggested to her that one of her options was to leave the company. The article stated that Toyota replaced Weil Gotshal & Manges, the New York firm that initially advised the company on the matter with another law firm (Weil Gotshal is among the most prominent U.S. law firms advising on corporate governance and business ethics).

According to Ms. Kobayashi’s complaint, for several months she endured the sexual advances of Mr. Otaka. These included inappropriate invitations to lunch, requests that she accompany him on business trips, gifts and flowers, and two forcible attempts to engage her in sexual activity.