Kobe Steel CEO to Resign Over False-Data Scandal

TOKYO— Kobe Steel Ltd.’s KBSTY 1.54% chief executive said he would step down effective April 1 to take responsibility for a quality scandal that has shaken Japan’s reputation for top-notch manufacturing.

“To demonstrate that Kobe Steel has changed and to speed up change, we need new management,” said Hiroya Kawasaki, the head of Japan’s third-largest steelmaker.

Kobe Steel—which supplies the makers of cars, planes and nuclear plants—admitted in October to falsifying quality specifications on products shipped to hundreds of customers, prompting an investigation by the U.S. Justice Department. On Tuesday, the company said some of the data falsification went back 50 years.

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Kobe Steel’s announcement opened the floodgates for similar revelations at other top manufacturers, puncturing national pride in Japan’s manufacturing prowess.

In recent months, Mitsubishi Materials Corp. MIMTF 945.78% and Subaru Corp. FUJHY 0.64% admitted to quality-inspection lapses, while Nissan Motor Co. said it let unqualified employees perform final quality inspections on some cars. Those companies, as well as Kobe Steel, said no safety issues resulted.

Other scandals in recent years affecting Japan’s reputation include problems at Takata Corp. , which declared bankruptcy last year after it said it supplied more than 50 million defective vehicle air bags in the U.S.

Mr. Kawasaki blamed a corporate culture that he said prioritized winning orders and meeting delivery deadlines over quality. Kobe Steel said that two current and two former executives at its aluminum and copper division had been aware that workers were falsifying data but that they failed to stop the practice or report it to the board. Another executive only partially addressed the issue by having some of the orders halted, it said.

The two former executives were directly involved at some point in the practice, the company said, following a probe by outside legal experts. It didn’t name those involved or detail what happened to them.

‘To demonstrate that Kobe Steel has changed and to speed up change, we need new management.’

—Hiroya Kawasaki, Kobe Steel’s chief executive

To date, the company has found that 605 customers received shipments affected by data falsification. Overseas customers accounted for 222 of those.

The company will overhaul its board so that a third of its members are external directors and set up an advisory committee dedicated to compliance issues, Mr. Kawasaki said.

“I cannot but say that the roots of the problem go deep,” he said.

Kobe Steel said five executives, including the head of its aluminum and copper division, would also resign, while other executives would have their pay cut as much as 80%. The company said it would name a new CEO soon.

For all the upheaval, Kobe Steel’s results have yet to take a major hit. The company has said the scandal would reduce net profit by ¥10 billion ($94 million) in the year ending March 31 to ¥45 billion, up from a loss the previous year, thanks to higher steel prices and strong demand for construction machinery.

The impact next fiscal year will hinge on overseas litigation, said Ryosaku Kadowaki, head of Kobe Steel’s management strategy.

Write to Mayumi Negishi at mayumi.negishi@wsj.com

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