Finally, Fresh Faces At Japan Inc.

But will this group of leaders turn their companies around?

The scene is suddenly familiar. On Feb. 19, Hisashi Kaneko bowed before reporters and acknowledged his poor performance as president of NEC Corp. Why? Under relentless pressure at home and abroad, Japan's largest chip and computer maker expects to post a $1.25 billion net loss, its biggest ever, in the year ending Mar. 31. NEC will cut 15,000 jobs over the next three years. Kaneko will be among the first to depart.

Japan's economic quagmire is finally sucking down the corporate elite. The logical follow-through is to appoint tough managers who can straighten out sick companies. But it's far from clear whether incoming corporate chieftains will be able to turn their companies around. Japan Inc.'s problems are as ingrained as the keiretsu system of complex loyalties and share cross-holdings. The only hope is that the recession grows so severe that it finally demolishes the old management model.

HIGH STRESS. The trend to dump bosses could spread quickly. In March, when 15 debt-burdened banks get the first injection of $67 billion in public funds, the money will arrive with government pressure to shake up management. The stronger banks are expected to urge keiretsu partners, as well as other companies they deal with, to restructure. "After the banks are reformed, we'll see a lot of shake-ups in the boardrooms of the companies that they deal with," points out Keiko Kondo, a strategist at Merrill Lynch in Tokyo.

The stress is already evident at the top electronics companies. It began last June, when Takashi Kitaoka quit as president of Mitsubishi Electric Corp. Then came NEC Chairman Tadahiro Sekimoto. At Hitachi Ltd., President Tsutomu Kanai moves to the chairman's office in March. Apart from Sekimoto, who resigned abruptly last October after NEC was implicated in a defense-procurement scandal, the reasons for their removal are the same: heavy losses and no clear strategy to stem them.

Electronics companies have overproduced despite recession and tougher competition abroad. This miscalculation reflects the company structure itself--and a corporate culture unconcerned with shareholder value. For years, manufacturers diversified to grab market share at the expense of profit. As long as the economy prospered, the system was sustained by one essential rule. Keiretsu stockholders never meddled in each other's affairs--which kept outside controls on management to a bare minimum.

FRONT-RUNNER. Problems were inevitable once the good times stopped rolling. Sekimoto, the former chairman of NEC, "grew so powerful that no one dared oppose his decisions," says Naoki Sato, an industry analyst at HSBC Securities in Tokyo. Last year, Sekimoto put more money into Packard Bell NEC Inc., NEC's U.S. unit, despite losses and a falling market share in personal computers. This year, NEC will spend $625 million restructuring the company and $425 million more to buy out Packard Bell's burdensome European operations.

Faults in the corporate culture also led to sluggish responses to change. Hitachi was long Japan's front-running chip and computer maker. But Kanai failed to translate a technological lead into a top spot in the market. "Hitachi has lost its edge," says Masaharu Akutsu, a technology expert at the independent Mitsubishi Research Institute Inc.

There are some encouraging signs that the new leaders are serious reformers. Mitsubishi Electric's new president, Ichiro Taniguchi, has agreed with Toshiba Corp. to merge electric motor businesses. At NEC, incoming CEO Koji Nishigaki plans to accelerate decision-making and to spin off unnecessary businesses. The new president of Hitachi, Etsuhiko Shoyama, intends to divide it into 10 companies that will have to post steady profits or get shut down. They are sure to encounter stiff resistance. But perhaps if enough gray heads roll, a new generation of tougher-minded managers will emerge with a mandate to revive Japan Inc.

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