Mitsubishi: Failed Vision

CEO Makihara is a man of great talent, but he could not impose his ideas on the huge group he headed

Mitsubishi Motors Corp. is all over the papers these days. And with good reason: Its disregard for consumer complaints about the safety of Mitsubishi cars over decades is appalling corporate behavior. But 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, when Makihara became president of Mitsubishi Corp., the trading company that is the flagship of Japan's biggest keiretsu, huge corporate alliances such as Mitsubishi were welded together by business ties, webs of cross-holdings, and shared values. Rarely had such a cosmopolitan figure risen to the top of Japan's business Establishment. Born in England, prepped in the U.S. at St. Paul's School, and graduated from Harvard, Makihara was an internationalist. As the de facto leader of a group with around $300 billion in global revenues, he wielded extraordinary business clout--or so it seemed.

Today, Makihara's group is in a shambles. The main Mitsubishi companies mustered a meager 4% return on equity last year, and some posted huge losses. Ailing and debt-ridden Mitsubishi Motors is about to sell a 34% stake to DaimlerChrysler. Mitsubishi Electric Corp. is fading from the pack of information-technology leaders in Japan. And Mitsubishi Bank, now merged with Bank of Tokyo, no longer can routinely provide the easy credit it once supplied to other group members.

Quite a comedown for Makihara, 70, and mighty Mitsubishi. In the late 1980s, Japanese academics were even talking about the "Mitsubishification" of global markets. Then, the company seemed to embody the 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 drives into global markets.

In their Friday Club meetings at Mitsubishi Village, a clutch of corporate headquarters a stone's throw from Tokyo's Imperial Palace, the bosses of the group's most powerful companies--Mitsubishi Corp., Mitsubishi Heavy Industries, Mitsubishi Electric, and Mitsubishi Bank--gathered to discuss strategy and map out new businesses. Indeed, Mitsubishi struck terror in U.S. and European boardrooms. In 1989, Mitsubishi Estate stunned the world by buying 51% of Rockefeller Center, an American icon it has since sold off. Mitsubishi Motors expanded rapidly into the U.S. market, while Mitsubishi Electric's big-screen TVs flew off the shelves.

The irony is that Makihara figured out early on that the keiretsu needed fundamental change. Many group companies, he knew, were far too bloated and indebted. Nor did the closed alliance structure make sense in a global economy where cross-border mergers are all the rage. He said that Mitsubishi companies should cut their stakes in each other and make better use of the capital, but to no avail. He advocated bringing a management team from other Mitsubishi companies into Mitsubishi Motors to help sort out its problems. But other chief executives in the group, increasingly focused on their own troubles, were reluctant to help.

Since its founding in 1870 as a shipping company, Mitsubishi has survived numerous crises, including dissolution of the original holding company by U.S. occupation forces after World War II. But somewhere along the way, the merits of the keiretsu system have turned into huge liabilities. The preference for keeping things in-house has proved to be inefficient. Mitsubishi Electric, for instance, missed a huge opportunity by sticking to a proprietary computer system when the world moved to Microsoft software and Intel chips.

SAVING FACE. Makihara still sees value in a keiretsu that can draw on the group's collective talents. But, as he told me last year: "Twenty years ago, there were powerful leaders in the group. People are now more concerned about their own problems."

Sadly, Mitsubishi, like the rest of the country, just can't seem to tolerate radical change. The emphasis is on consensus and saving face. Mitsubishi companies trim a few jobs here and slightly cut back production there. In such drip-by-drip restructuring, managerial shortcomings--or consumer-safety complaints--never get addressed head-on.

That's the story at Mitsubishi, which is slipping into irrelevance. It's the tragedy of Makihara, who showed promise of becoming a world-class chieftain, but never had a chance to impose his vision on this fabled organization.