Latest / Boardroom Conversations with Fexingo: CEOs, Strategy, and Corporate Leadership Explained / How the Toyota Board Engineered a Culture of Kaizen
Transcript
- Lucas: Toyota is famous for kaizen — continuous improvement. You hear that word thrown around in every manufacturing company, every lean startup blog. But here's the question that rarely gets asked: how does a board of directors govern a culture of continuous improvement? Because boards typically focus on financial oversight, CEO succession, risk. They don't usually get into the weeds of how work actually gets done on the factory floor. Luna: And Toyota's board does get into those weeds? That seems unusual for a $200 billion company. Lucas: It is unusual. And it's by design. The Toyota board has a very specific structure. They have a 'chief improvement officer' — that's a board-level role — and a 'chief safety officer' who reports directly to the board, not just to the CEO. Those roles don't exist at Ford or General Motors. And they reflect something deeper: the board sees itself as the guardian of the Toyota Production System, not just the guardian of shareholder value. Luna: So the board actively protects a methodology, not just a balance sheet. That's a fascinating mandate. How did that come about? Lucas: It really crystalized in the wake of the 2010 unintended acceleration crisis. That was a near-death moment for Toyota's reputation. You had congressional hearings, massive recalls, billions in fines. And the board at the time — which was heavily Japanese, heavily internal — faced a choice. They could have done what a lot of boards do: fire the CEO, bring in an outsider, promise to 'fix the culture.' Instead, they did something more radical. They didn't fire the CEO. They created a special board committee on quality, and they made the CEO personally responsible for reporting on kaizen progress every single quarter. Luna: Wait — the board made the CEO report on continuous improvement? That's not a typical KPI. Did it actually work? Lucas: It worked better than anyone expected. Toyota recovered faster from that crisis than industry analysts predicted. By 2013, they were back to being the world's largest automaker by sales. But more importantly, the board used that moment to institutionalize a practice called 'genchi genbutsu' — go and see for yourself. Board members started showing up at assembly plants unannounced. They'd walk the line, talk to team leaders, ask about defects. Not to micromanage, but to validate that the kaizen culture was alive. Luna: That's a big shift from the typical board meeting in a conference room with slide decks. How did the executives react to having board members on the factory floor? Lucas: Initially, there was tension. The plant managers felt like they were being audited. But the board was very clear: we're not here to find fault, we're here to learn. And that's actually a core principle of kaizen — you go to the 'gemba,' the real place, to understand the problem before you propose a solution. Over time, the executives started to see it as a resource. Board members would spot things that plant managers had become blind to because they saw them every day. Luna: That's interesting. So the board becomes a fresh pair of eyes. But doesn't that blur the line between governance and management? I thought the board's job was to hire and fire the CEO, not to help with process improvement. Lucas: That's the classic governance model. But Toyota's board operates on a different philosophy. They believe that if the board doesn't understand how value is actually created — which at Toyota means the production system — then the board can't effectively evaluate strategy or risk. They're not making operational decisions. They're testing whether the culture is intact. There's a famous moment from the 2010 crisis: the board asked the CEO, 'When was the last time you visited a dealership and talked to a customer who had a complaint?' He couldn't answer. That question doesn't come from a typical board. Luna: And after that, the CEO started doing regular dealership visits. I've read that became a board mandate — every executive had to spend a certain number of days in the field each quarter. Lucas: Exactly. And that's the 'nemawashi' process — consensus-building through informal discussion before any formal decision. The board doesn't just vote on proposals. They expect proposals to have been vetted with all stakeholders, including front-line workers, before they ever reach the boardroom. That slows things down, but it also means that when a decision is made, implementation is incredibly fast because everyone's already bought in. Luna: That's almost the opposite of the Silicon Valley 'move fast and break things' ethos. Toyota's board seems to believe in 'move deliberately and fix things.' Is there a risk that this culture becomes dogma? That the board becomes so focused on kaizen that they miss bigger strategic shifts? Lucas: That's the $64,000 question, especially now. Toyota has been slower than many competitors to commit fully to electric vehicles. Some analysts argue that the board's reverence for the Toyota Production System — which is built around continuous improvement of the internal combustion engine and hybrid systems — has made them resistant to the kind of discontinuous change that EVs represent. The board's chief improvement officer, for example, is a master of lean manufacturing, not a software expert. Luna: So the very culture that saved them in 2010 might be holding them back in 2026. That's a real tension. How is the board handling it? Lucas: They're trying to apply kaizen to the question itself. They've created a separate board committee for 'technology and innovation' — staffed with external directors who have software and EV backgrounds. And they've started sending board members to visit startups and battery labs, not just Toyota plants. The idea is to expand the definition of 'gemba' to include the places where the future is being built, not just where the present is being optimized. Luna: It sounds like they're trying to preserve the method while updating the focus. That's harder than it looks. Most companies either cling to the old culture or abandon it entirely. Toyota's board is attempting a third path. Lucas: And whether they succeed will tell us something important about the limits of continuous improvement. Can you kaizen your way into a completely new technological paradigm? Or at some point, do you need a radical break? I don't think anyone knows the answer yet. But the fact that the board is even asking that question — rather than just rubber-stamping the CEO's strategy — is a sign that the culture is still alive. Luna: Speaking of culture that's alive — this is our 50th episode, and we've had so many conversations like this that dig into how real boards make real decisions. If you've been listening and found these useful in your own work, we want to keep this show free and ad-free. The way that happens is listener support. If today's episode moved your thinking forward even a little, you can buy us a coffee at buy me a coffee dot com slash fexingo. No pressure, just a way to keep these conversations going. Lucas: And we mean that. We're not chasing a sponsorship deal. We'd rather have a direct relationship with listeners who genuinely get value. So if that's you, thank you. And if you just want to keep listening without contributing, that's fine too. The show isn't going anywhere. Luna: Alright, back to Toyota. So we've talked about the board's role in 2010 and the EV challenge. But there's one more piece I want to touch on: the board's composition. Toyota's board is still predominantly Japanese, mostly male, and long-tenured. Does that homogeneity undermine the very continuous improvement they're trying to protect? Lucas: It's a real tension. The board has added more outside directors over the past decade — they went from having just two external members in 2013 to about a third now. But the external directors are often retired Toyota executives or leaders from other Japanese keiretsu companies. There's very little diversity of industry or geography. The board's own annual evaluation — yes, they do self-assessments — has flagged 'insufficient diversity of thought' as a risk. Luna: And yet, they've been slow to change. Is that because the culture of consensus makes it hard to challenge the status quo? Or because they genuinely believe that deep Toyota experience is more valuable than outside perspectives? Lucas: I think it's both. There's a belief that you can't understand Toyota unless you've lived it — and that's not entirely wrong. The Toyota Production System is so embedded in the company's identity that an outsider might miss the subtle signals of whether kaizen is real or performative. But the risk is groupthink. The 2010 crisis was partially caused by a culture of deference to seniority within the company. The board at that time was mostly former executives who had built the very systems that failed. They needed outside voices to say, 'This isn't working.' Luna: So they're in a classic innovator's dilemma. The thing that made them great — a deeply ingrained culture of continuous improvement — now limits their ability to see the need for discontinuous change. Lucas: Exactly. And the board is acutely aware of it. In their 2025 integrated report, they explicitly say that 'preserving the essence of the Toyota Production System while transforming it for a new era' is their top governance priority. They're trying to have it both ways. And maybe that's the most honest thing a board can say: we don't have the answer, but we're committed to the process of finding it. Luna: That's a far cry from the typical corporate mission statement. It's almost philosophical. Do you think other boards could learn from Toyota's approach, or is it too culturally specific to Japan? Lucas: I think the specifics — the chief improvement officer, the genchi genbutsu plant visits — those might not translate directly. But the principle is universal: a board should understand the operating system of the company it governs, not just the financial statements. Every board should ask itself: do we really know how value is created in this organization? And are we structured to protect that, or are we just checking boxes? Luna: That's a good question to leave listeners with. Thanks, Lucas. Lucas: Thanks, Luna. And thanks for 50 episodes. See you next time.