Keiretsu are groups of Japanese companies with interconnected boards of directors and common business interests, born out of the pre-World War II zaibatsu. They were responsible for Japan’s postwar growth and are defined by two business principles: affiliation with the same bank and intertwined boards of directors. The largest and best known keiretsu is the Mitsubishi Group.
A keiretsu is a group of Japanese companies with interconnected boards of directors and common business interests. Created after World War II to replace the once-dominant family-owned zaibatsu conglomerates, several keiretsu were responsible for the “Japanese miracle” of economic growth that lasted until the 1980s. of similar, though not identical, businesses around the world.
The keiretsu model was born out of the pre-World War II zaibatsu. Soon after Japan became an empire in 1868, family businesses began to dominate large swathes of the Japanese economy. Mitsubishi, Yasuda, Sumimoto, and Mitsui, the largest zaibatsu, gained much of their power early on by becoming the government’s tax collectors and weapons makers. The American occupation held the zaibatsu responsible for influencing public policy regarding the war. Although the occupation dissolved some smaller zaibatsu, the need to rebuild Japan’s economy during the Cold War allowed the four great zaibatsu to reorganize into the modern keiretsu.
The remaining zaibatsu adapted its business structure. Two business principles define a keiretsu. The first is that each separate company, traditionally called a group company, is affiliated with the same bank. The bank only accepts deposits and grants loans to group companies. One benefit of this system is that the bank can quickly bail out a single company in the struggling group, protecting it from outside hostile takeovers. Even if one company in the group goes bankrupt, another company in the keiretsu will absorb the remaining assets.
The second defining principle is the board of directors intertwined between the group companies. While each group company exists as a separate entity, the presence of the same men and women on multiple boards makes it possible for group companies to act in the interests and needs of others. While each group company may be involved in the production of different goods and services, strong financial and corporate ties place all group companies in a stronger and more secure position in the Japanese and world economy.
The largest and best known keiretsu in Japan is the Mitsubishi Group. Like Sumimoto and Mitsui, Mitsubishi reorganized itself into an association of group companies responsible for Japan’s postwar growth. Its dozens of group companies produce a variety of products, many with a high-tech focus. Along with the interlocking boards of directors, the heads of the group’s 25 largest companies meet for lunch once a month to coordinate their business efforts.
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