Bringing in an unorthodox outside auditor to reform the board (1994)

The paradox of discipline imposed because the owner could impose it

What is essential in this decision is that an owner-run company, some 40% of whose shares the Mitsui family held, deliberately brought in a demanding outside auditor to discipline itself. Directors who see one another every day, each carrying his own wounds, find it hard to say hard things. Mitsui acknowledged that limit and gave sweeping authority to Arakawa, who had not come up through the company. In a figure able to decide anything on his own say-so choosing instead to seal off that say-so and return matters to debate at the board, one can see an intention to build a properly disciplined joint-stock company.

That said, the reform rested on the owner’s strong backing. Arakawa could act as “the voice of God” only because Mitsui meant to hold his own company to account. Turn that around and you have the weakness common to Japanese companies: depending on the calibre and the practice of the person at the top, a board can be hollowed out overnight. Mitsui said the reform was still in progress. This board reform can be read as embodying the paradox that owner management is precisely what made a transparent and disciplined company possible — while leaving open the question of how far its continuation can be freed from depending on one individual at the top.