Case: Mitsui & Co: The DPF Incident

1. Analyze the strategy Utsuda put in place for Mitsui. What would you change? Why?
Problem definition: Mitsui & Co. is involved in a second corporate scandal, even though the company has tried to change the corporate culture after the first corporate scandal, in order to prevent this from ever happening again.
We can analyze Utsuda’s strategy by using the STAR Model by Edward E. Lawler (1996).
Strategy
* Mitsui wants to become a global business enabler that meets customer needs. * Company strategy: * Who: customers throughout the world (company is present in 79 countries). * What: a broad array of products and services in five business areas. * How: by embracing the challenge of continuous innovation and the belief that employees are the core drivers of value.
Structure
* Mitsui is one of the largest corporate conglomerates in Japan and operates in five different business areas: * Petroleum and natural gas. * Information technology, electronics and power plants. * Chemical production. * Minerals and metals. * The company is matrix-oriented and split into three regions, which are managed independently. * Thirteen headquarter business units serve as cross-regional, vertically integrated functions.
Rewards
* Mitsui offers lifetime employment. * The company has a results-based remuneration scheme that focusses on short-term quantified targets and subsequently under-valuates results that cannot be measured numerically, such as positive customer relationships. * This system has led to a decline in employee morality.
Processes
* Management platform centered on internal controls and corporate compliance. * Extensive program to create an open and honest corporate culture.
People
* Conservative management with absence of a strong sense of morality and of high ideals. * Loyal employees with declining morality because of the remuneration system. * Lack of alignment with new corporate culture.
According to Lawler, the main challenge in changing the culture is to identify what points of the star give the current culture its characteristics and then to figure out how to change them in order to implement a more functional culture. I would advise Utsuda to change the compensation system. The remuneration system should not only be based on quantitative targets such as year-on-year sales growth , but also on qualitative targets such as developing and maintaining trusting relationships with customers and other relevant stakeholders and the company’s reputation.
Second, Utsuda should consider to abolish the lifetime employment. On the one hand, lifetime employment creates employee loyalty. On the other hand, employees might not feel obliged to follow the company’s rules and regulations and behave sincerely, because there is no danger of losing their jobs.
Furthermore, Utsuda needs to explain extensively to management and employees why this change is necessary. He needs to establish a sense of urgency. In the recent past, Mitsui has been involved in a severe corporate scandal; the Kunashiri incident. The company was severely criticized by society, thereby damaging its reputation. Subsequently, Mitsui reformed the company considerably, for example by reshuffling the management, the announcement of a new management philosophy and the introduction of a the management platform focused on internal control and compliance. Despite these reforms and the efforts Utsuda has made to change the company’s culture, Mitsui faces a new scandal.
I believe that not all employees are aligned with the new culture. Therefore, Utsuda needs to create internal consistency as soon as possible. This is particularly important for Mitsui because of its large size and independent structure. Internal alignment and consistency are essential to the successful execution of the company’s strategy.

2. How would you analyze Utsuda as a leader in the context of LCC?
Utsuda has a strong set of beliefs concerning his company and the strategy necessary to become a dynamic value-creating company. He also has strong beliefs about the importance of corporate responsibility. He shows courage, for example by proposing a 20% pay cut for himself, his public announcement about the absence of a strong sense of morality and of high ideals in Mitsui’s management and his intention to deeply reform the company’s culture. I also believe he cares for other people because he actively and directly tries to involve employees in his mission to change the corporate culture. Utsuda recognizes the importance of internal communication to communicate the strategy. He is personally involved in communicating with employees and management and fosters an ungoing and active dialogue. Unfortunately he has not yet been able to get management and employees to think and act like owners, otherwise the current DPF incident wouldn’t have occurred.
Utsuda has a clear set of values and a clear vision about the company and the corporate culture that is necessary to execute the strategy and subsequently reach the company’s goals. Second, Utsuda also has a clear strategy. I also believe that he is a source of energy because of his strong vision and beliefs. I don’t think though that he has built a strong team. Because of the organization structure (independently managed regions) creating alignment between all parts of the company is essential to execute the strategy in a consistent and correct way.
Finally, Utsuda doesn’t seem to have spent enough time on box 2 thinking (strategic, not urgent matters). This might have prevented a new scandal from happening.

3. How should Utsuda manage the DPF incident?
Reputations are hard to win but easy to lose. During the first corporate scandal, Mitsui’s handling of the crisis was sharply criticized. The company reacted slowly and disclosed only minimal information, thereby giving the impression it was still trying to hide information. This had made matters even worse and the company’s reputation was damaged severely.
Therefore, Utsuda should reveal the new scandal himself before somebody else releases the information because the reputational risk is tremendous. Because Mitsui has been involved in a scandal before, the reputational threat is intensified. Before revealing the scandal, Utsuda should know all the facts in order to develop the appropriate response strategy and right communication strategy for the crisis. He should also analyze the company’s stakeholders and their expectations and formulate key messages for each group of stakeholders. He should also decide on the appropriate communication channels to reach these stakeholders and consistently communicate the same key messages. He should take ownership of and responsibility for the unlawful actions of his employees. Also, the company’s employees need to be informed about the scandal and its effects on the company and themselves.
After analyzing the points mentioned above and choosing the appropriate response strategy, Utsuda can decide on the right moment and place for the announcement of the scandal.

Literature:

Lawler, Edward E. (1996), Achieving High Performance: Turning Principles into Practice. In From the Ground Up: Six Principles for Building the New Logic Corporation, San Francisco: Jossey-Bass Publishers.