Scandal-hit Mitsubishi Electric gives outside directors a majority

The repeated scandals at Mitsubishi Electric, whose portfolio ranges from air-conditioning systems to industrial robots and semiconductors, have been blamed on an insular corporate culture.

YUTA FUKUSHIMA, Nikkei staff writer | Japan

TOKYO — Mitsubishi Electric will make outside directors a majority of its board and set up a team to reform its corporate culture in response to a slew of quality control scandals, President and CEO Kei Uruma told Nikkei on Monday.

Uruma was tapped to lead the company in late July, after predecessor Takeshi Sugiyama resigned over news that inspection results for train equipment had been faked as far back as the 1980s. This was only one in a string of similar revelations in recent years, and the list has kept growing even after Uruma took the helm.

The decades of fraud, and the continuing string of lapses after repeated vows to shape up after previous scandals, mean that Mitsubishi Electric has a long, hard road ahead to regain customers’ trust.

The changes to the board aim to address the governance problems laid bare by the troubles of recent years. “Executive officers were not reporting information in a timely and appropriate manner at audit committee meetings,” Uruma said.

To improve oversight, Mitsubishi Electric will add more outside directors beyond the five now on the 11-member board, aiming to make the appointments official at next June’s shareholder meeting.

Uruma also discussed tackling the company’s insular, siloed culture that has been cited as a factor behind the repeated scandals. An excessive focus on the interests of individual divisions may have gotten in the way of conducting investigations and implementing fixes companywide when problems arose.

Mitsubishi Electric will look to move personnel between departments more often — a shift for the company, where employees now usually stay in the fields where they were first assigned. Uruma suggested this push would focus on those 35 and younger.

“By moving people around, we hope to connect divisions horizontally,” he said.

Mitsubishi Electric President and CEO Kei Uruma detailed how he plans to transform the company in an interview with Nikkei.

The company plans to set up by October a new department specifically for quality control — now handled by individual divisions — with the ability to halt shipments of products that fall short of quality standards. The department will report directly to the president, and an executive officer will be brought in from outside to lead it.

A “transformation team,” made up of around 30 to 40 mostly section chiefs, will be launched as early as October to help improve Mitsubishi Electric’s corporate culture. They will be divided into smaller groups and asked to come up with suggestions in different areas.

“You could call section chiefs the navel of a company,” Uruma said. “When they change, those above and below them also change. We want to use that to improve our company’s thinking.”

Mitsubishi Electric has also altered its approach to investigations after past probes failed to clear out the rot.

Previously, “we had called on people to report problems” voluntarily, trusting that they would do the right thing, Uruma said. “We know now that there are things that don’t come out this way.”

This time around, the company has set up an investigative committee made up of an outside attorney and other experts, which is set to report its results and recommendations by around September.

As for the time frame for the reform drive, “I honestly can’t predict” when it might wrap up, Uruma said.

“We don’t plan to take it slow, but there’s no point if we rush and let misconduct slip by,” he said.

The situation has bogged down the company’s shares, reflecting skepticism among increasingly governance-focused investors. Mitsubishi Electric closed Monday down 8% from June 29, before the train equipment quality scandal emerged. The Nikkei Stock Average’s broader electrical machinery subindex rose 0.5% over that period.

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