Family tensions and succession maneuvering darken Toyota's top ranks

Updated : 01.12.2016 / Category Economy

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A complex network of family connections helped the Toyoda family create the giant conglomerate that today is centered around Toyota Motor Corp. Japan's leading carmaker now has more than 560 subsidiaries—either consolidated, or accounted for in the equity method—under its wing.

Yet amid the transfer of power at the company from Shoichiro Toyoda to his son Akio, there have emerged clear signs of friction between members of the main Toyoda family and relatives in other branches of the family, according to a former executive of Denso Corp., a Toyota group firm.

In the past, members of the sprawling Toyoda family tree were on more familiar terms, calling each other by their family nicknames, according to inside sources. Members of the three branch families—referred to as the Shinke, Oshikiri and Chikaramachi branches—would gather socially with their relatives in the main Toyoda family a few times a year.

Members of the Shinke branch are linked to Rizaburo Kodama, who took the Toyoda name when he married Aiko, daughter of Toyota founder Sakichi Toyoda. Rizaburo eventually became the first president of Toyota Motor. Two of Rizaburo's sons went on to hold high-level posts in Toyota group companies—Kokichiro, senior managing officer of Toyota Industries Corp. and Daikichiro as chairman of Toyota Tsusho Corp.

The Oshikiri branch takes its name from the Oshikiri district of Nagoya's Nishi Ward, where Sakichi's younger brother Heikichi had his home. Prominent members of this branch include Eiji Toyoda, Heikichi's second son and Toyota's fifth president, and Yoshitoshi Toyoda, former chairman and current honorary chairman of Toyota Industries.

The Chikaramachi branch is also named after a district of Nagoya, this one in Higashi Ward, where Sakichi's youngest brother Sasuke lived. Minoru Toyoda, former president of Aisin Seiki Co., and Tomizo, former auditor of Toyoda Gosei Co., are from the Chikaramachi branch.

The children of Sakichi and his brothers, all first cousins, are said to have met frequently and been quite close.

Akio's 'dark jealousy'
The extended Toyoda clan is no longer a small, close-knit group, and the Toyota conglomerate has grown to mammoth size, making it increasingly difficult for relatives to keep in close contact. The "meetings of cousins" are a thing of the distant past. Members of the Toyoda families now only gather on important occasions, such as anniversaries of Sakichi's death, according to a Toyota insider.

Nevertheless, the family has managed to maintain a degree of unity. "The main family has treated the branches well, and respected their role as a bulwark for the family's interests, whereas the branch families have served the main family with intense loyalty," according to the same source.

However, Akio is said to abhor the traditional arrangement. According to sources close to the president, he has gone so far as to say he intends to stop giving the branch families special treatment. "The importance of the main family is drastically different from that of the branch families," Akio has been quoted as saying.

Indeed, since Akio assumed the presidency, far fewer Toyoda family members have roles in the Toyota group. Previously, employees bearing the Toyoda family name were conspicuous throughout Toyota Motor and its subsidiaries.

Among the listed companies in the Toyota group, there are only three executives with the Toyoda family name, all sons of Eiji Toyoda. They are Kanshiro, chairman of Aisin Seiki; Tetsuro, who is simultaneously chairman of Toyota Industries, auditor of Toyota Tsusho and external auditor of Aichi Seiko; and Shuhei, chairman of Toyota Boshoku Corp. Other Toyota family members are treated as rank-and-file employees, according to an informed source.

All the three Toyoda family executives are elderly. The youngest, Shuhei, is 69, while Kanshiro is already 75. Now in his eleventh year as Aisin Seiki chairman, rumor has it that he will retire soon, according to a former Toyota group company executive.

Shoichiro left Aisin Seiki last year after 26 years as company auditor. Kanshiro's retirement would leave Aisin Seiki with no executives linked to the Toyoda family.

What generated Akio's ill will toward the branch families of the Toyota empire? According to a former Toyota executive, the key lies with Eiji Toyoda, who is perhaps the most prominent figure to have come from one of the branch families.

Credited by some for "rejuvenating the dynasty," it was Eiji who, only a month after becoming Toyota president in 1967, decided to build the Motomachi plant, which alone would be capable of producing 10,000 vehicles a month. At the time, Toyota's total output was only 5,000 units a month.

Thanks to explosive sales of the Corolla model, Eiji is seen as having played a key role in the "motorization" of Japan. Under his leadership, Toyota formed a tie-up with General Motors of the United States, a move that was described as a "handshake between giants." Eiji laid the foundation for Toyota's globalization by launching production of compact cars in the United States under a joint venture with GM. In business circles, he was admired as an outstanding leader. Shoichiro has praised Eiji for having achieved the lion's share of the Toyota group's success.

Contrast Eiji's record to Akio's assumption of power in 2009. The company was rocked by the global recession sparked by the collapse of Lehman Brothers. Already losing money due to this crisis, the company was dealt a further blow by massive recalls in the United States. Never very popular with the media, Akio has received much negative coverage, with some outlets going so far as to call him "incompetent."

In short, some speculate that Akio harbors a "dark jealousy" of Eiji's high public regard, which often seems the opposite of his own reputation. The theory goes that these feelings have motivated him to eliminate members of the branch families from the top echelons of the group.

In 2013, Eiji died at the age of 100. As if waiting for his death, Toyota's performance rapidly recovered. The automaker has achieved a dramatic turnaround, logging record net profits three years in a row starting with the business year ending in March 2014.

According to the former Toyota executive, Akio's confidence and pride have swollen as he had made himself, a member of the main Toyoda line, the family's sole representative. He has gradually developed a "cold view" of the branch families, the former executive said.

Foundation chairmanship fuss
One particular incident "decisively worsened" Akio's feelings toward the branch families, the former executive said.

The incident involved Masateru Toyoda, a son of Minoru Toyoda, who is the eldest son of Sasuke, the youngest brother of Toyota founder Sakichi. Masateru was accused of trying to take advantage of his social status to gain sexual favors when he was at Aisin AW Co., a consolidated subsidiary of Aisin Seiki that produces automatic transmissions and car navigation systems in Anjo, Aichi Prefecture.

Last summer, Masateru allegedly demanded that a female university student have relations with him if she wanted a job at his company. At the time, the woman was working part-time in a restaurant while looking for a full-time job. In late March, she filed a complaint against Masateru with the Nagoya District Court, demanding ¥5.5 million in compensation for the mental distress she suffered as a result of the incident.

Masateru was born out of wedlock to a Ginza bar hostess who was his father's mistress. A graduate of Tamagawa University in Tokyo, Masateru was deputy manager of Aisin AW's production headquarters and also held the title of advisor, which is considered just below the executive level.

According to an informed source, Aisin AW was initially reluctant to take punitive action against Masateru, who despite being born out of wedlock is still a member of the Toyoda family. The company hoped to keep the scandal quiet through an out-of-court settlement.

However, the incident infuriated Akio, who demanded that strict measures be taken through Toyota Motor. Masateru was dismissed on disciplinary grounds in November last year.

The recent maneuvering over who would become the next chairperson of the Chubu Economic Federation gives a glimpse into Akio's complex feelings about the branch families, according to sources in Nagoya business circles.

Toshio Mita, the advisor and former chairman of Chubu Electric Power Co., stepped down as chair of the federation at a board meeting in March. Mita had held the position since 2011. At the meeting, the board informally decided that Tetsuro Toyoda, then the federation's deputy chairman and the current chairman of Toyota Industries, would succeed Mita. Although Tetsuro officially assumed the post in June, Akio initially opposed the appointment.

Tetsuro's uncle, who once was also chairman of Toyota Industries, headed the federation from 2004 to 2007, making Tetsuro the second person to hold this position among the families of the Toyota group. In spite of this precedent, Akio refused to accept the idea of appointing Tetsuro to the post. One person involved in the matter speculated that Akio was displeased about the prospect of a branch family member receiving any limelight.

Like the Japan Federation of Economic Organizations (Keidanren), the pinnacle group for Japanese business leaders, the Chubu Economic Federation often has difficulty finding suitable candidates for executive posts. In the past, federation chairmen usually came from Chubu Electric Power Co., but the utility company is currently engulfed in difficulties related to the deregulation of the electricity markets and its Hamaoka nuclear power plant. Besides, its current chairman, Akihisa Mizuno, only took over the post from Mita last year, and has little experience with leadership roles in business associations.

In the end, Aiko "unwillingly" agreed to accept Tetsuro's appointment, according to an informed source. But the affair was surprising to the business community, exposing a rift in the Toyoda family, which many had seen as monolithic.

Akio's 'lapdog'
Meanwhile, Akio is gradually becoming preoccupied with the question of who will succeed him as president of Toyota Motor. It has already been seven years since Akio took over from Katsuaki Watanabe, the automaker's tenth president and not a member of the Toyoda family. Although Akio turned 60 in May and despite being head of one of the world's most important corporations, he continues to race automobiles under the handle "Morizo." Naturally, this hobby puts him at risk of being incapacitated in an accident. According to a retired senior official of the company, deciding as a precaution who would succeed Akio and when "is a very important and urgent issue for avoiding any possible confusion in corporate management."

Akio is known to have a son, Daisuke, with his wife Yuko. A senior Keidanren official called Yuko "a classy, slender, beautiful woman who is not flashy yet still draws the attention of people at parties and other social occasions."

Daisuke graduated from Keio University, Akio's alma mater, and spent some time studying in the United States. He is now working for Toyota, a source close to the Toyoda family said. However, Daisuke is believed to be in his late 20s, which means that if Akio wants to hand over the family empire to his son, it is not something that can happen anytime soon.

Therefore, Akio may be thinking of taking a similar course to that of his own father. Shoichiro was transferred from Toyota Motor to become president of Toyota Motor Sales Co. in 1981. The following year, the two companies merged into Toyota Motor, and Shoichiro became president of the consolidated company.

Shoichiro held this position for 10 years, but even after handing the presidency over to his younger brother Tatsuro and becoming chairman, he held onto the right to represent the company until 1999, thereby ruling over Toyota as de facto leader. And even after becoming honorary chairman in 1999, he remained on the board until 2009, when Akio became president. It took Shoichoro about 17 years after stepping down as Toyota Motor president to realize his dream of installing another member of the Toyoda family as head of the motor company.

Only three years after his appointment, Tatsuro resigned as president due to health issues. Despite this unexpected setback, Shoichiro managed to maintain a degree of control over the next three Toyota Motor presidents—Hiroshi Okuda, Fujio Cho and Watanabe—men who entered the company as employees, not as members of the Toyoda family.

"Following Shoichiro's example, Akio is trying to draw up a scenario for eventually handing the presidency to Daisuke by controlling appointments to the company's top posts," a former senior official of the Toyota group said.

Of course, this process starts with choosing Akio's own successor. According to many Toyota group employees, competition for this spot is already well underway. The stage for this is said to be the "in-house company" system introduced in April with Akio's encouragement.

Under the system, corporate divisions that were formerly classified by function, such as research and development or sales, have been reorganized by product to create seven in-house companies: Toyota Compact Car, Mid-size Vehicle, CV (commercial vehicle), Lexus International, Advanced R&D and Engineering (responsible for self-driving technology), Power Train (in charge of engine development), and Connected (handling IoT technology). Seven of the company's 16 executive directors were made presidents of these companies. One goal of this structural change is said to be nurturing next-generation management talent by granting executives more responsibility and authority.

The executive directors who were tapped to lead the in-house companies are Kiyotaka Ise, Kazuhiro Miyauchi, Moritaka Yoshida, Keiji Masui, Tokuo Fukuichi, Toshiyuki Mizushima and Shigeki Tomoyama. Akio is planning to make these seven men compete to become the next president of Toyota Motor, according to sources.

Of the seven, Tomoyama, head of Connected, is said to be Akio's favorite and the leading candidate to succeed him, according to a mid-level official at Toyota Motor. Tomoyama was born in 1958 in Saitama Prefecture. He joined Toyota in 1981 after graduating from the Gunma University Faculty of Engineering. His ties to Akio date back to 1991 when Akio was a mere subsection chief and Tomoyama was his subordinate. Tomoyama and Akio worked together to launch GAZOO, an information system for Toyota vehicles. Since 2000, he has spearheaded Toyota's efforts to promote information technology strategies, such as the introduction of online sales negotiations for new and used vehicles, and the computerization of Toyota's distribution and sales system. Akio is said to feel close to Tomoyama because he too is interested in motor sports. For instance, the executive has participated in "24 Hours Nurburgring," an annual endurance auto-racing event held in Germany.

"At present, Tomoyama is probably the candidate closest to the goal," said a senior official at the company, citing his experience, albeit short, working abroad during a two-year posting in Guangzhou.

Still, it is probably too early to be making predictions about Toyama's future, as he is openly despised by some company officials, who have referred to him as "just a lapdog" and "Akio's henchman."

Some retired executives have even said that management of an automaker should not be left to a mere IT engineer.

Critical moment approaching
Shoichiro assumed Toyota's presidency at the age of 57 and Akio did so at age 53. Supposing Daisuke ascends to the post around the same age, that is nearly 30 years in the future. This could be too long for Akio. For another member of the Toyoda family to become president of the automaker, Akio must allow presidents from outside the family to steer the company, while retaining some leadership as "head honcho" of the entire group. A critical moment is likely soon approaching that could determine the success or failure of Akio's effort to see his son as Toyota president.

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This is a translation of an article from the December 2016 issue of Sentaku. The original article can be found here.