Japanese Yearbook on Business History-1993/10 Owners and Salaried Managers in Hitachi Engineering Works Namihei Odaira's Management Style Masaru UDAGAWA and then developed under his leadership.This is a matter HITACHIof commonENGINEERING knowledge.WhatWORKS was foundedis less commonlybyNamihei knownOdaira is that Odaira was not the owner of the company,but a salaried man ager.Prior to World War II,Hitachi Engineering Works was a subsidiary within the Kuhara zaibatsu(later the Nissan combine,then the Manchuria Heavy Industries Development Corporation[Mangyo]).1 Accordingly,during the Kuhara zaibatsu period the owner of the com pany was Fusanosuke Kuhara,while in the Nissan/Mangyoóperiod the owner was the controller of the combine,Yoshisuke Aikawa.2Both of 1 For more on the move to Manchuria,see my article,•gThe Move into Manchuria of the Nissan Combine,•hJapanese Yearbook on Business History,vol.7,1990,pp.3-29,and for the business history of the Kuhara zaibatsu and Nissan combine,see chap.1of my book,Shinko zaibatsu[The new zaibatsu](Nihon Keizai Shinbunsha,1984). 2St rictly speaking,the relationship between Yoshisuke Aikawa and Namihei Odaira at the time of the Nissan/Mangyo combines was that of the manager of a parent firm and the manager of a subsidiary firm.Still,Aikawa's authority within both combines was absolute;he ran things completely from an owner's position.In this study I am there fore considering their relationship to be one between owner and salaried manager. 28JAPANESE YEARBOOK ON BUSINESS HISTORY-1993/10 these owners were autocraticmanagers of the field-generaltype.In spiteof thisfact,though,rightfromHitachi Engineering Wbrks'sfbun dation,the managerial activitieswere consistentlyin the hands of a team of salariedmanagers headed by Odaira.Since ownership and management were separatedin HitachiEngineering Works,the com pany was a managerial enterprise. The objectof thispaper is to study the primary factorsat work in the establishment and growth of Hitachi Engineering Works as a managerial enterprise within the Kuhara zaibatsu and Nissan/ Mangyo combines,with particularattention to the relationships between owners and salariedmanagers as regardsthe decision-making Process. I.HITACHI ENGINEERING WORKS AS A MANAGERLAL ENTERPRISE 1.A SHORT HISTORYOF HITA CHIENGINEERING WORKE3 n1908Namihei Odaira wasI the head of the engineering sectionat Hitachi mine,which was a part of Kuhara Mining.Eager to produce electricalmachinery domestically,Odairabuilt an electricalmachin ery repairshop as a subsidiaryfacility within the Hitachi operations. This repairshop developed into a manufacturing plant in1910,and itwas given the name Hitachi Engineering aWorks.InJanuary1912 it separated form the Hitachi mine engineering section.In September of that same year,when Kuhara Mining was reorganized as the Kuhara Mining Company,Hitachi Engineering Works became a businessestablishment of the lattercompany. Inspired by the ideal of developing Japan's own technology, Hitachi Engineering Works would encounter various technical diffEcultiesright fromthe outset.Still,itwould solveeach of them in due course and go on to solidifyits operational fbundations when the importing of electricalmachinery was banned fbllowing the out break of World War I and orders began to pour in for itsmachinery In1918Hitachi EngineeringWbrks absorbed the Tsukudajima. man plant,whichwas manufacturinggeneral machinery forufacturing Kuhara Mining,made itthe Kameido plant,and took the firststeps toward 3M y discussioninthis section isbased principally material on found in Hitachi Ltd, ed.,Hitachi Seisakusho shi(1)[The history of Hitachi(1)](1960). UDAGAWA:Owners and Salaried Manager in Hitachi29 diversified operations by uniting the manufacture of electrical machinery and general machinery.In February1920Hitachi Engineering Works separated from Kuhara Mining Company(here after,Kuhara Mining)altogether and became an independent com pany with capitalization of••10,000,000. In February1921it bought up the Kasado shipyard,which had been run by Nippon Steamship Company,a subsidiary of the Kuhara zaibatsu,and converted it into an electric locomotive manufacturing plant.Having thus firmly established a three-factory structure with plants in Hitachi,Kameido,and Kasado,Hitachi Engineering Works was the only establishment within the Kuhara zaibatsu to achieve steady progress in the recession that followed World War I,while the other firms were experiencing serious difficulties,so that by the end of1920it ranked among the top four heavy electric machinery mak ers,along with Shibaura Engineering Works,Mitsubishi Electrical Engineering Co.,and Fuji Electric Manufacturing Co.(three com panies with foreign-capital tie-ups).Finally,in December1922,when the Kuhara zaibatsu,facing the threat of bankruptcy,was reorga nized into the Nissan combine(the core of which was Nippon Industrial Company,an open holding company)by Fusanosuke Kuhara's brother-in-law Yoshisuke Aikawa,Hitachi Engineering Works also became a subsidiary of the Nissan combine. It is common knowledge that the Nissan combine adopted the open policy of subsidiary enterprises,that in October1933it made a pub lic offering of stocks in Hitachi Engineering Works,which was enjoy ing a very good business track record.This public sale enabled Hitachi Engineering Works,which had hammered out a policy of major expansion in the midst of a sudden increase in heavy chemical man ufacture following the outbreak of the Manchurian Incident in September1931,to raise capital from the stock market.Able to allot new stocks to shareowners in November of the same year for the first time since its operations became independent,it went on to make repeated new stock allotments in rapid succession,and by1940it had expanded its capital shares to\204,500,000.Making best use of new stock allotments and its increased capital,Hitachi Engineering Works pushed forward with the expansion of its three plants and the diversification of its products,so that in March1936,acquiring the right of management of Osaka Ironworks,a Nissan combine subsidiary, 30JAPANESEYEARBOOK ONBUSINESS HISTORY-1993/10 it moved into shipbuilding.In May of the next year Hitachi Engineering Works absorbed Kokusan Industries,founded by Aikawa.By the absorption Hitachi Engineering Works acquired7new plants,so that in one stroke it moved from a3-plant organization to a10-plant organization.When in May 1939Hitachi Engineering Works purchased Tokyo Gas and Electric Industrial Company,it sep arated its manufacturing divisions and established three subsidiary companies:Hitachi Aircraft,Hitachi Ordnance,and Hitachi Machine Tools. In the meantime,in December1937,the Nissan combine's par ent company,Nippon Industrial Co.(hereafter referred to by its pop ular name,Nissan),moved to Hsinking(present-day Changchun)in Manchuria and reorganized itself as a Manchurian juridical person under the new name of Manchuria Heavy Industries Development Corporation(popularly known as Mangyo).At the same time Hitachi Engineering Works became an affiliated enterprise of that same com pany. 2.SPECIALFEATURES OF A MANAGERIAL ENTERPRISE Alfred D.Chandler,Jr.,defines a managerial enterprise in the following terms: Firms in which representatives of the founding families or of finan cial interests no longer make top-level management decisions- where such decisions are made by salaried managers who own little of the companies'stock-can be labeled managerial enter prises.4 Chandler also stresses the development of managerial hierarchies as the primary factor making it possible for managerial enterprises to exist,regardless of the type of ownership involved.One reason for this is that founder-owners,unable to provide sufficient numbers of the capable personnel needed to fill the managerial hierarchies that develop in response to the expansion of their enterprises,are even tually forced to entrust top management to salaried managers who have specialized knowledge.Another reason is that the fine tuning 4See Alfred D.Chandler,Jr.and Herman Daems,eds.,Managerial Hierarchies (Harvard University Press,1980),p.4. UDAGAWA:Owners and Salaried Manager in Hitachi31 Table1.Makeup of Hitachi Engineering Works's Board of Directors Unit:number of people) ( Year Owners Salaried managers Total 1920 2 3 5 1925 2 4 6 1930 4 4 8 1935 3 5 8 1940 3 15 18 Notes:Those participating in the board of directors as representatives of the parent company(Kuhara Mining,Nissan,or Mangy)arc considered owners. Source:Hitachi Ltd,ed.,Hitachi Seisakusho shi(2)[The history of Hitachi(2)](1960). of the flow of raw materials and finished products and the monitor ing activities carried out by the salaried managers through such a management structure make possible an accumulation of Internal capital,which reduces dependence on the owners for capital.One further reason is that the profitable results achieved through the business skills of the salaried managers make it possible to widen cap ital supply routes.5 In the light of Chandler's definition,it is clear that Hitachi Engineering Works fully satisfied the conditions of a managerial enterprise,regardless of whether it was subject to the financial con trol of Kuhara Mining or Nissan or Mangyo.When one looks at the constitution of membership in the boards of directors,which is an indicator of the form of top management existing in the company, one finds,as in Table1,that,except for1930,when the number of owners and the number of salaried managers were the same,the num ber of managers exceeded that of owners,and