Subject: [cwj 115] The Humbling of Mitsubishi -- and Its Visionary Leader
From: Corporate Watch in Japanese <>
Date: Fri, 22 Sep 2000 16:08:25 -0700
Seq: 115

The Humbling of Mitsubishi -- and Its Visionary Leader
SEPTEMBER 5, 2000          
By Brian Bremner
Business Week                    

Minoru Makihara knew the once-omnipotent conglomerate had to change
drastically. In Japan, though, that's a near impossibility                

Mitsubishi Motors Corp. is all over the papers these days. And with good
reason: Disregarding legitimate consumer complaints about the safety of
Mitsubishi nameplates for decades is appalling corporate behavior. But it's
more than that. The allegations punctuate the end of an era for the
Mitsubishi keiretsu -- and for the vision that Minoru Makihara had for this
once-mighty industrial group.

Back in 1992, Makihara became president of Mitsubishi Corp., a trading
company and flagship of Japan's biggest keiretsu, huge corporate alliances
welded together by shared values, business ties, and webs of
cross-shareholdings. Rarely had such a cosmopolitan figure risen to the top
of the Japanese business establishment. Born in England, prepped at St.
Paul's School, and graduated from Harvard, Makihara was an
internationalist. As de facto chief executive of the group, he inherited
quite a group of powerful players.

At Mitsubishi Village, a clutch of company headquarters a stone's throw
from the Imperial Palace, the bosses of the group's most powerful companies
-- Mitsubishi Corp., Mitsubishi Heavy Industries, Mitsubishi Electric, and
Mitsubishi Bank -- would gather for their kinoyokai, or Friday Club
meetings. They'd swap ideas, discuss strategy, and map out new business
ventures. Before Japan's economy went into a protracted slide last decade,
they justifiably felt like lords of the universe. 

CHEAP CAPITAL.  Back in the late 1980s, Japanese academics talked about the
"Mitsubishification" of global markets. The company seemed to embody the
very best attributes of the keiretsu model, based on a plentiful supply of
cheap and patient capital from its group bank, cross-group subsidies and
equity stakes, and concerted dashes for new global markets. 

In those days, Mitsubishi struck terror in U.S. and European boardrooms. In
1989, Mitsubishi Estate stunned the world by buying 51% of American icon,
Rockefeller Center. Mitsubishi Motors, backed by group affiliates and
suppliers, expanded rapidly into the U.S. auto market, while Mitsubishi
Electric's big-screen televisions flew off the shelves.

Today, the group is in shambles. Even if you set aside the self-inflicted
scandal, debt-burdened and ailing Mitsubishi Motors is about to sell off a
34%-odd stake to DaimlerChrysler. Mitsubishi's stock has fallen by more
than one-third in recent weeks.

LOST ALLURE.  Mitsubishi Electric is fading from the pack of leading
information technology players in Japan. Since merging with Bank of Tokyo,
Mitsubishi Bank is no longer the undisputed leader in Japanese finance and
can't routinely provide easy credit to other group players. The main
Mitsubishi companies mustered a 4% return on equity last year and some
posted huge losses. It used to be that the brightest graduates of Japan's
elite schools considered signing up with Mitsubishi a dream job. Now
they're more likely to hook up with foreign multinationals and investment
banks -- or take their chances with homegrown dot.coms. 

Quite a comedown for Makihara and Mighty Mitsubishi. The irony is that
Makihara figured it out first that the Mitsubishi Group needed fundamental
change. He knew many group companies had made lousy investments during the
good times and were far too bloated and indebted throughout the 1990s, when
the economy hit a very rough patch. Nor did a closed alliance structure
make sense in a global economy where cross-border mergers are all the rage. 

True, Mitsubishi has survived numerous crises ever since its 1870 founding
as a shipping company by Yataro Iwasaki. U.S. Occupation forces even
disbanded the old Mitsubishi holding company, as a payback for turning out
the infamous Zero fighters during the Pacific War. Yet strong leaders
pretty much rebuilt the empire during the 1950s and 1960s. Since a keiretsu
wasn't really a monolithic holding company, Japanese trustbusters looked
the other way. 

LEFT BEHIND.  But somewhere along the way, the merits of the keiretsu
system turned into huge liabilities. The corporate preference for keeping
things in-house proved to be inefficient. Mitsubishi Electric, for
instance, missed a huge opportunity last decade by sticking to a
proprietary computer system when the whole world moved to Microsoft
software and Intel chips. Mitsubishi Motors auto sales were grossly
inflated by fleet sales to other group companies. Locking up capital in
keiretsu cross-share tie-ups turned into a waste of valuable capital.

Makihara has always argued for a more flexible strategy toward outside
alliances as long as the Mitsubishi brand name was nurtured in some way. He
saw value in a keiretsu that could draw on the collective talents of the
group, when a member company ran into harm's way. But, as he told me last
year, "Twenty years ago, there were powerful leaders in the group," adding,
"People are now more concerned about their own problems."

So why couldn't a smart guy like Makihara and others in the group work
through such problems? Sadly, such talent isn't worth much in Japan. The
country just can't seem to tolerate radical change. The premium is on
consensus, baby steps, and saving face.

DRIP BY DRIP.  The Mitsubishi companies have all lost out because of such
gradualism. They trim a few thousand jobs through attrition here and
slightly pull back on production there, even though the situation cries out
for much more. It's the sort of drip-by-drip restructuring that
accomplishes little in the end. So managerial shortcomings -- or consumer
safety complaints -- never get addressed head-on.

And that's pretty much the story at Mitsubishi, which is slipping into
irrelevance. It's the tragedy of Makihara, who though groomed to be a
world-class chieftain, never had a chance to impose his vision on this
fabled organization.        

Bremner is Tokyo bureau chief for Business Week. 

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