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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. Follow his columns, every week for BW Online Edited by Douglas Harbrecht
Copyright 2000, by The McGraw-Hill Companies Inc. All rights reserved.
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