Part 2

Author: Teruaki Sueoka

2. Corporate Governance by Saihei Hirose

Saihei Hirose

Saihei Hirose was born in Yabu-mura, Yasu-gun in Omi Province (present-day Yasu City, Shiga Prefecture) in May 1828 (11th year of the Bunsei era). In 1836 (7th year of the Tenpo era) at the age of nine, he moved to the Besshi Copper Mines, accompanying his uncle who worked there. Apprenticed to the House of Sumitomo, he took every opportunity to educate himself, eventually becoming general manager of the Besshi Copper Mines. Hirose was notable for the global perspective that he cultivated in the course of his career in the copper sector. This naturally included knowledge of the places to which copper from Besshi was exported and a sure grasp of the significance of the metal in the world. Recent research has revealed why Hirose, despite the objections of other executives, strove to prevent the requisition or sale of the Besshi Copper Mines at the time of the Meiji Restoration. Hirose had a vision of the future shaped by his recognition that the copper business was essential for Japan’s development. In dealings with the Tosa Domain, which the new government put in charge of negotiations concerning the Besshi Copper Mines, Hirose expressed his conviction that the House of Sumitomo’s continued ownership and management of the Besshi Copper Mines would be in the national interest. Hirose also expressed his views to Tomomi Iwakura, a leading statesman of the Meiji era. So persuasive was Hirose’s sincerity that the House of Sumitomo retained ownership and management of the mines. This cleared the way for the modernization and development of the Besshi Copper Mines, which laid the foundation for the industrial development of Niihama.

A letter of attorney from Tomochika, the 12th head of the Sumitomo family, to Saihei Hirose, entrusting him with full authority concerning the business of the House of Sumitomo.

Another significant achievement of Hirose was his introduction in the early years of the Meiji era of what today is known as corporate governance. The current exhibition includes a letter of attorney from Tomochika, the head of the Sumitomo family, to Saihei Hirose dated 1877 (10th year of the Meiji era). In contrast to the word sori, which denotes responsibility for the whole, the word buri denotes partial responsibility. At first, in 1874 (7th year of the Meiji era), Hirose was appointed buridainin and the responsibility for hiring a French mining engineer was delegated to him. Hirose hired Louis Larroque who formulated the Besshi Copper Mines Masterplan for modernization of the mines. While an organization is small, the owner can retain all the levers of control in his hands, but as the organization grows larger and the owner can no longer manage it effectively, professional management becomes essential. In 1877 (10th year of the Meiji era) Hirose received the letter of attorney and was appointed soridainin (later soriji director-general), that is, the person in charge of management of the entire business.

Rules Governing the House of Sumitomo

As is well known, at the heart of the Rules Governing the House of Sumitomo established in 1882 (15th year of the Meiji era) by Hirose is a fundamental principle: the obligation to accord prime importance to integrity and sound management while eschewing the pursuit of easy gains. These rules include an article stating that if the legitimate heir is unsuitable to be the head of the Sumitomo family, that person’s right shall be revoked. This meant that the executive team had the power to select the owner of the House of Sumitomo. According to the rules, the role of the head of the Sumitomo family is to “reign but not govern,” like a constitutional monarch. Other business houses that had relationships with Saihei Hirose and Teigo Iba adopted the fundamental principle of the Rules Governing the House of Sumitomo. For example, the House of Tsukamoto (present-day Tsukamoto Corporation), the House of Mitsumura (present-day Mitsumura Printing Co., Ltd.), the House of Aso (present-day Aso Group), and the House of Itoh (present-day ITOCHU Corporation and Marubeni Corporation) had house rules whose content was similar to that of the Rules Governing the House of Sumitomo. Recognizing its universal applicability, other houses embraced the principle of the House of Sumitomo.

3. Industrial Revolution at the Besshi Copper Mines

Besshi Copper Mines Masterplan formulated by Larroque

Saihei Hirose achieved an industrial revolution at the Besshi Copper Mines. As a result of the Meiji Restoration, Japanese enterprises were thrust into the global marketplace without any preparation. The traditional way of doing things in Japan became untenable once Japanese enterprises found themselves operating in a commercial environment where they were expected to adhere to global norms. Therefore, Hirose hired Larroque to modernize the Besshi Copper Mines through technological innovation and to reduce the unit cost of the copper from those mines to an internationally competitive level. It is noteworthy that Japan achieved modernization in 20 years whereas it took European countries 100 years. Hirose declared, “I will devote myself to encouragement of new industry and share the benefits with tens of millions of people.” Far from being simply for the benefit of Sumitomo, Hirose’s drive to modernize the Besshi Copper Mines through an industrial revolution was informed by his aspiration to spread affluence throughout Japan. As a result, smelters were opened at the Sobiraki in Niihama and the foundation for a thriving industrial city was laid. In the Japan of those days, whereas bureaucrats were the focus of the greatest respect, members of the merchant class had a much less exalted position in the social hierarchy. While traveling in Europe and North America in 1889 (22nd year of the Meiji era), Hirose was impressed by the high regard accorded to business people and the widespread recognition of the vital role they could fulfill by enriching society. On returning to Japan, Hirose shared his views with other members of the Osaka Chamber of Commerce. In 1892 (25th year of the Meiji era), Saihei Hirose together with Eiichi Shibusawa, Ichibee Furukawa, and Kunishige Date were the first cohort of private-sector leaders to be awarded the Order of the Sacred Treasure, Fourth Class in the Meiji era for their contributions to Japan’s industrialization.

Yamane Smelter in 1890 (23rd year of the Meiji era)

However, the smelter, widely viewed as the symbol of prosperity, was the source of smoke pollution. A volume of photographs was created in 1890 (23rd year of the Meiji era) to commemorate the 200th anniversary of the Besshi Copper Mines. One of my favorite photographs in that volume is a fine view of the Yamane Smelter. The Yamane municipal sports grounds and the Besshi Copper Mine Memorial Museum now occupy the site where the Yamane Smelter once stood. Yet 120 years after its construction, the chimney of the Yamane Smelter still stands tall, a solitary sentinel on top of the mountain. This photo was taken in late May and you can see the fields of wheat in front of the smelter, almost ready for harvesting. Neither Hirose, who was responsible for the construction of the smelter, nor the fields of wheat, could have foreseen what the 20th century had in store for Japan. Thus, I think this late-19th-century photograph is an eloquent harbinger of the 20th century. (To be continued)

Proceed to Part 3