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Tepco's reformist new leadership must confront enemy within

Old guard stands firmly against change at troubled Japanese behemoth

Takashi Kawamura, incoming chairman of Tepco, left, and Tomoaki Kobayakawa, who will be promoted to president.

TOKYO -- Tokyo Electric Power Co. Holdings' incoming leadership team faces the challenge of instilling a new mindset at a utility where decades of protection under Japan's regional monopoly system have bred complacency and resistance to change.

Hitachi Chairman Emeritus Takashi Kawamura will replace Tepco Chairman Fumio Sudo in June. President Naomi Hirose will become vice chairman, with Tomoaki Kobayakawa, a director who came up through Tepco's retail energy business, to succeed him. The leadership reshuffle was announced Friday.

When Ministry of Economy, Trade and Industry chief Hiroshige Seko first sounded out Kawamura about the position during a secret meeting in early January, the former Hitachi chief did not give an answer right away, a source familiar with the events said. He did not immediately shoot down the proposal, however, unlike when he flatly refused to chair the Keidanren business lobby when asked to do so in 2013. Kawamura mulled over the idea for several weeks before finally agreeing to take the chairman post.

Among his conditions was a leadership shakeup from the president down -- the "transfer of power to a new generation" recommended by a government panel on reforming Tepco on which Kawamura sits. Decontamination of the disaster-stricken Fukushima Daiichi nuclear plant, as well as negotiations with potential partners for restructuring or mergers of Tepco businesses, should be entrusted to young leaders who will be around to see the outcome of their efforts, the thinking goes.

The 77-year-old Kawamura's request suggests that he hopes to use the experience and vision gained from his work turning around Hitachi to direct enthusiastic young officials. He seems to have gotten his wish with Kobayakawa, 53.

Internal resistance

Tepco President Naomi Hirose

This reshuffle follows an attempt by Sudo and other officials to replace Hirose a year ago. The company's old guard, sensing trouble brewing, lobbied the prime minister's office and the ruling Liberal Democratic Party to have the president stay, with support from influential former Tepco officials such as former Chairman Tsunehisa Katsumata. The plan ultimately fell through.

Tepco's conservative faction is adept at political maneuvering that takes full advantage of its financial resources. When METI tried to deregulate Japan's electricity industry, including by separating power generation and transmission, it was hamstrung by those seeking to defend the mighty Tepco.

Hirose lacked such a shield this time around. Respected business heavyweights on the Tepco panel -- such as Japan Chamber of Commerce and Industry Chairman Akio Mimura and Yoshimitsu Kobayashi, chairman of the Japan Association of Corporate Executives -- called for an infusion of new blood into Tepco's management.

Tepco was found in February to have exaggerated the capabilities of an earthquake-resistant structure at the Kashiwazaki-Kariwa nuclear power plant. The incident fueled skepticism within the panel about Hirose's leadership, with some complaining that the culture of secrecy at Tepco remained unchanged.

Hirose tried to cling to his position, asserting at a March news conference that he still has much to do and casting the sole vote against the proposed new slate of executives at Friday's board meeting. But the groundwork has nevertheless been laid for his replacement.

Conflict looming

Yet Hirose still holds significant sway within Tepco, having steered the utility through a difficult time -- he took over the year after the 2011 Fukushima Daiichi meltdown. Mimura advised METI chief Seko late last year not to have the president resign to take responsibility for Tepco's dire straits, noting that the utility has come as far as it has since the disaster under his leadership. A compromise was reached under which Hirose would handle the Fukushima fallout in a new vice chairman post.

This effort to appease conservatives has not silenced grumbles of discontent. Though Kobayakawa, the young incoming president, is held in high regard by Chairman Sudo and others, the old guard is less pleased.

"The thought that conservatives could rally around Hirose and internal strife could flare up again is frightening," a worried Tepco employee said.

The Tepco panel's review Tuesday of an outline of a new turnaround plan included requests from Kawamura, such as spinning off the nuclear operations from the holding company and paying closer attention to the company's finances.

"It looked like he'd already thought about his reform plans," an attendee said.

In the final weeks of the Sudo era, Tepco has struck a deal to combine its thermal power business with that of Chubu Electric Power. As Sudo's successor, Kawamura's main mission will be arranging similar restructuring for all of Tepco's other core operations, including nuclear power and electricity transmission and generation. His deft management of Hitachi's transition from a general electronics maker to a social infrastructure company has fueled high hopes for his Tepco tenure.

Imposing discipline

The biggest key to successful reform will be fostering internal unity.

Sudo's New Year's speech to top management this year came with a strongly worded appeal. "Since coming to Tepco, I've almost never seen a superior seriously reprimand or wholeheartedly praise a subordinate," he said.

"Mr. Sudo's Spartan [style] is too harsh for Tepco employees who have rarely been scolded for a lackadaisical attitude toward business," a senior METI official speculated.

The seemingly irreparable rift between top leadership and other senior management has left little hope of progress on tasks that Tepco must tackle. Though Kawamura has the backing of powerful business figures and the industry minister, he may still struggle amid a corporate culture averse to sudden change.

But reform must come soon if Tepco is to come up with the 21.5 trillion yen ($192 billion) it needs for decommissioning Fukushima Daiichi and compensating those affected by the disaster. Though Hirose will lose representative rights despite being part of the troika leading the company, an uprising by the old guard could still sap motivation for change. Whether Kawamura can assert authority over the conservative contingent remains to be seen.

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