The value of a company will be determined by the trust of its stakeholders and such trust can only be gained when the firm’s top executives take the initiative for information disclosure, Masahiro Sakane, chairman of Komatsu Ltd., told the Dec. 19 symposium.

Communication holds the key to better cooperation among divisions within a company, which contrary to the widespread view is poor at many Japanese firms, Sakane said in his keynote speech titled, “Management reform at Komatsu and communication.”

Sakane defined corporate value as “the aggregate degree of trust a company receives from society and its stakeholders,” including shareholders, clients, investors, sales agents and employees.

“And trust is achieved when the top executive of the company fulfills his or her duty to make appropriate information disclosure, ensure transparency in management and get rid of surprises,” Sakane said.

“A good company is a company without surprises — good or bad ones,” said the chairman of the major construction machinery maker.

The top management of a company must establish a mechanism to ensure that bad news about the firm, such as accidents involving its products and legal compliance problems, always reaches the president in a timely manner, Sakane told the audience.

“Good news is no news. No news is bad news. Bad news is good news,” Sakane said, citing a phrase he learned during his days as head of Komatsu’s U.S. operation.

“If you are the president of a company, you don’t have to make extra efforts to hear good news because your subordinates will always report to you whenever they have won major business contracts,” Sakane said.

What’s worst, he said, is when the president gets no news at all — or when relevant information does not reach the top management.

“If bad news reaches the president in a timely manner, he will be able to take action” to deal with the damage, Sakane said.

When a company is accused of breaking rules or violating laws, the public will never accept the explanation from the president that he had not known about the wrongdoing, he said. Not informing the top management of bad news may seem like a way of averting risk, but you cannot escape the risk, he added.

Bad news is not naturally reported to top management, and the president must let his subordinates know what information he wants first and foremost, Sakane said.

Sakane said while he was president of Komatsu from 2001 to 2007, he had each of the company’s division chiefs regularly report to him about major news in their divisions — first about events that relate to safety, environment and legal compliance, then about quality issues and supply of parts to the firm’s customers, and finally earnings. “What’s important is to set priorities,” he added.

It is often said that one of the common strengths of Japanese-style corporate management is the close cooperation among divisions within a company or between a manufacturer and its network of suppliers. However, Sakane said executive-level communication between different divisions tends to be very poor at many Japanese companies.

At Komatsu, for example, executives in charge of production and research and development rarely visited each other’s office in the past, and communication also used to be poor between production and sales divisions, Sakane said.

Better communication among these divisions through reform efforts has led to improved management of sales, production and inventory at Komatsu — a crucial element of business especially in tough times like the current global recession, Sakane said.

“After all, production holds the key” for better interdivisional communication within the company, he said. “People in the production division are the furthest away from the market, and can easily become self-righteous. Better communication and closer cooperation among production, R&D and sales will enable the company to take fairly quick action” in response to market needs, he added.