Keiretsus and Conglomerates

1. Keiretsus and Conglomerates
By, Jeffrey Fisher
Sociology of Organizations, Fall 2014
Prof. Riehl
Teachers College, Columbia University
Mitsubishi
And
Berkshire
Hathaway

2. Corporate Culture
• Stakeholder vs. Stockholder Model
• East vs. West
• The many subsidiaries operate
independently all to help the center with
the bottom line in the West in contrast to
the East where all of the subsidiaries
operate more so to help the employees and
the communities

3. Essence of the M -Form
• “Conglomerate acquisitions by M-forms did not
represent inefficient empire-building by
managers, according to Williamson (and contrary
to most empirical evidence [Amihud and Lev
1981]; rather, these acquisitions were missionary
work meant to rehabilitate poorly run businesses-
the M-forms burden. The M-form conglomerate
profited by identifying and buying undervalued
targets and running them more effectively by
implementing appropriate internal financial
controls, ultimately benefiting economic
efficiency (Williamson 1975).” (Davis p.553)

4. American Conglomerates and the
M-Form

5. Hawthorne Effect on Target
Before and After
• The Hawthorne effect- individuals change or
modify their behavior when they know they
are being observed. Increase attention could
lead to increased worker productivity.
– Subsidiary managers and executives not observed
by parent prior to acquisition.
– After acquisition closes subsidiaries are observed
by parent corporation on at least an annual basis
if not a “Friday” meeting a month in the case of
Mitsubishi

6. “Double” Hawthorne Effect
Parent Corporation
Subsidiary
(Level 1)
Subsidiary
(Level 2)
Subsidiary
(Level 2)
Subsidiary
(Level 1)
Subsidiary
(Level 2)
Hence the DOUBLE
Hawthorne effect
The Primary Sub can
oversee the Secondary
Sub below it as well
The parent can oversee
not just the sub directly
below it but those
below the sub as well

7. Hawthorne Effect
• “In the illumination experiments, some
workers were defensive or suspicious and
curbed their output, while others, overly
anxious to cooperate, increased their output
by “spurting”. (Wickstrom, 364).
– In times of window dressing for quarterly earning
or sales of entire subsidiaries or the entire target
corporation a long sprint or spurt may be achieved
by the entire team to increase revenues and
profits while management is preparing a sale.

8. The Hierarchy
Hierarchically both the Top Down
Conglomerate and Managerial
Kieiretsus share Authority
The same
structure

9. Integration
• Both Berkshire and Mitsubishi make acquisitions to
compliment existing businesses
• Both engage in Vertical and Horizontal acquisition
integration
• Both engage in branding and economies of scale
• The Integration process here is in fact Win Win within
both the Conglomerate and the Keiretsu

10. Centralization
• Subsidiaries let the parent report their
financials for them lowering costs and
creating strategic synergies.
In both situations the
whole is greater
than the sum
of its parts

11. Protect and Defend
• Both the Keiretsu and the Conglomerate have
better chances of survival by acquiring,
building, creating and maintaining strategic
and competitive advantages as well as
building Moats both competitive and
financial. Berkshire through core insurance
and Mitsubishi through its core bank

12. Keiretsu and Conglomerate
The Financials
• Organizationally both ally themselves with strategic
partners to sustain and grow both domestically and
internationally. Though not wholly owned
subsidiaries, a seat on the Board and a Vote provide
a voice.
• Mitsubishi –
• Berkshire -

13. The Hawthorne Effect, the Foucault
Effect and Open Market Investments
• What would senior management do?
• How do I monitor myself to do what senior
management would want me to do?
• https://www.youtube.com/watch?v=O0R_9L_
D2Yk

14. Hands Off Managerial Approach Goes
Well With Foucault
• Both Berkshire and Mitsubishi allow their
subsidiaries to operate independently. Subsidiary
heads may expect a Hands Off approach by
Parent Corporation management.
• Mitsubishi holds monthly “Friday” meetings with
subsidiary executives
• Berkshire holds its Annual Meeting with its
executives and shareholders from all over the
world.

15. Private vs. Public
• Mitsubishi is a private corporation thus
depriving the public of ownership
participation but allowing them to benefit
their stakeholders without expensing it to
their public stockholders.
• Berkshire is a public corporation and provides
more public reporting documents as a result
and is therefore more public stockholder
oriented.

16. Corporate Culture
• Mitsubishi- Ziabatsu (now Keiretsu), founded
1870. Employees before profits. Lifetime
employment. Sociologically on par with a
homogenous society.
• Berkshire- (1839 originally), 1964 in its current
form. Profit and shareholder oriented. Prefers
not to write insurance policies if premiums are
too low and forgoes business to manage risk.
Favors the shareholder at the potential expense
of the employee. Prime example of a capitalist
heterogeneous society.

17. Permanence as an Organizational
Aspect
• Bigger is Better
• Strength in numbers
• Economies of scale
• Synergies (again)
• Diversification
• Reputation
• Pillars of the economy

18. The Multi-National
• Organizationally both the Conglomerate and
the Keiretsu have a presence in countries
throughout the world. This presents issues:
– Sociological
– Cultural
– Religious

19. The Land of the Rising Sun
meets The Heartland

20. References
• Davis, G.F. and Diekman, K.A., Tinsley, C.H.,
The Decline and Fall of the Conglomerate Firm
in the 1980s: The Deinstitutionalization of an
Organizational Form 1994 American
Sociological Review
• Wickstrom, Gustav, MD, Bendix, Tom, MD.
The “Hawthorne effect” – what did the
original Hawthorne studies actually show?
2000 Scand J Work Environ Health