Mitsubishi clings to tradition in face of change

Mitsubishi clings to tradition in face of change

By Chester Dawson

TOKYO (AP): Life-time employment. Seniority-based promotions. Cozy ties between member firms. The Mitsubishi group's traditional ways of doing business were hailed in the 1980s as the keys to rocketing to the pinnacle of Japan Inc. -- and world industry.

Those traditions have earned Mitsubishi a darker reputation in the 1990s: stick in the mud.

As Japan searches desperately for an escape hatch out of its deepest recession since World War II, the venerable Mitsubishi empire has emerged not as a symbol of success, but a lesson in what's wrong with the Japanese way of doing things.

"The changes facing the Japanese economy are not short-term, but structural, so the Mitsubishi group is pulling Japan back by sticking to old ways," said Hiroshi Okumura, a professor in the business studies department at Tokyo's Chuo University.

At Mitsubishi, the signs of malaise are in the ledger.

Japan's slide into recession has brought a drop in profits and revenue at most Mitsubishi firms, including Mitsubishi Electric Corp., Mitsubishi Motors Corp. and Nikon Corp. Only four of the group's 25 core companies with publicly traded shares posted increases in profit and sales for the fiscal year ended in March.

The group, made up of companies with large stakes in each other, was dismembered after World War II. Mitsubishi was rebuilt in the decades after the war, and now faces its toughest challenges since grappling with the oil shocks of the 1970s.

"The crisis which confronts the Mitsubishi group is much more serious than it was 20 or 30 years ago," said Minoru Makihara, chairman of Mitsubishi Corp., a trading house at the center of the group.

That's quite a blow for Mitsubishi, whose core companies oversee more than 250,000 workers in firms with combined earnings of roughly 30 trillion yen (US$216 billion) -- larger than the entire economy of Austria.

Making products ranging from beer to rocket engines, the Mitsubishi group has grown in tandem with Japan's transformation from a feudal backwater in the 19th century into the world's second-largest economy.

Just a few years ago, Mitsubishi seemed an emblem of the Japanese challenge to corporate America. But the group's fortunes peaked not long after its real estate arm, Mitsubishi Estate Co., snapped up Rockefeller Center in 1989. That jewel in the group's crown was sold off -- at a loss -- seven years later as Japan's economic miracle unraveled.

The economy is not coming back anytime soon. In a report issued in July, Japan's Economic Planning Agency warned of a marked decline in industrial labor productivity -- and called for overhauling the traditional employment and management models which have been championed by Mitsubishi.

At issue are the paternalistic business practices characteristic of much of Japan Inc.: cooperation among related firms and cradle-to-grave benefits for loyal workers. Mitsubishi even runs a matchmaking service for its employees named after its distinctive red trademark -- the "Diamond Family Club."

Among the staunchest defenders of Mitsubishi's conservative style is Kentaro Aikawa, chairman of Mitsubishi Heavy Industry Ltd. and de facto head of the group. He recently earned the enmity of shareholders by speaking out publicly in favor of putting company jobs ahead of profits.

Coming from a business baron those remarks sound odd. But they are very much in line with the corporate principles laid down by Yataro Iwasaki, the scion of a samurai clan who founded Mitsubishi in 1873.

Once nurtured by government subsidies, Mitsubishi has long harbored a commitment to broad national interests. Iwasaki's zeal for public service is enshrined in the first of the group's business principles: corporate responsibility to society. Still, the fabled unity of Mitsubishi has begun to fray.

"The individual companies have to survive by themselves. They cannot depend on help from the group," said Yoshihiro Sakamoto, a former top trade ministry official who now serves as an advisor at The Bank of Tokyo-Mitsubishi Ltd.

A solution to the group's woes has so far eluded the chief executives from 28 core Mitsubishi firms, who gather once a month for a brainstorming session in a top floor suite around a long oval table, with a wooden Buddhist deity decorating one wall.

But some voices within Mitsubishi are calling for a drastic restructuring to shed troubled units. Others seek more moderate steps such as trimming bloated payrolls by getting rid of unneeded workers.

The burden of history is heavy, however.

"Japanese companies are destined to make cutbacks whether we like it or not," said Katsuhiko Kawasoe, president of Mitsubishi Motors Corp. "But Mitsubishi can't be the first to do so."