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Management in Practice

How do you lead a company through a nuclear accident?

The 2011 tsunami and the meltdown of the Fukushima Daiichi nuclear power plant in Japan shattered the nuclear industry’s "safety myth" and prompted the shutdown of all nuclear power plants in the country. Naomi Hirose '83 talks about leading the plant’s operating company through an unprecedented cleanup and rebuilding effort.

Before the March 2011 earthquake and tsunami devastated Japan, 30% of the country's power came from its 54 nuclear power plants. There were plans to move toward 50% in an effort to reduce greenhouse gas emissions and based on the industry's promises of 100% safety.

The tsunami, the meltdown at the Fukushima Daiichi nuclear power plant, and the ensuing crisis exposed the risks that had lain unacknowledged and dramatically shifted public perception of nuclear power. Following the accident, all nuclear power plants in the country were taken offline. A new regulatory agency has been set up even as there is a tentative plan to end all nuclear power in Japan by 2040. But the cost of importing substitute energy sources is prompting reconsideration.

These events have changed everything for Tokyo Electric Power Company, the operator of the Fukushima Daiichi plant. The company was blamed by many for not doing enough to prevent the meltdown. It was then bought out by the government and is spending as much as $100 billion to decommission Fukushima and some $30 billion to compensate people in the region. Meanwhile, the actions of the company, both before and after the accident, have come under exacting scrutiny.

Naomi Hirose '83 took over as the company's CEO and president in 2012, after a 30-year career at the company. He spoke with Yale Insights about how the company has been transformed, and what he needs to do to lead it through such a prolonged crisis.

Q: What was the state of TEPCO prior to the earthquake, tsunami, and accident at the Fukushima Daiichi nuclear power plant in March 2011?

TEPCO used to be the world's biggest privately owned power company. We served one third of Japan, including the Tokyo metropolitan area. Although the Japanese economy has been sluggish, demand kept growing because the Tokyo area grew. While the commercial market was opened to competition, the residential market is still a regional monopoly. We were in a very advantageous position. Banks and financial organizations wanted to lend money to us so we didn't have difficulty financing projects.

It's strange, at this moment, to say this, but we were one of the most prestigious companies. We were always ranked in the top 20 or 30 companies that students wanted to work for. It's very different now.

Looking back, maybe we were too arrogant, too stable.

In the six months before the earthquake, we issued a long-term plan called Vision 2020. It outlined expanding our marketing area outside Japan. I was one of the managing directors in charge of international business.

We owned minority shares of several generation plants in Thailand, the Philippines, Vietnam, and Indonesia. It had been a very stable and lucrative business, so we planned to strengthen that. We allocated $10 billion to take over independent power producers abroad, particularly in Southeast Asia, where electricity demand is very strong.

Electric power companies aren't usually considered to be aggressive and outward-looking, but we were trying to implement a very ambitious plan. We increased our capital stock by several billion dollars to finance those investments. Looking back, it was really bad timing.

Q: Since the tsunami, the government has provided $10 billion in capital in exchange for majority control, all of the nuclear power plants in the country have been shut down, and the management of the situation at the Fukushima Daiichi plant continues to face serious challenges. What is TEPCO's focus now?

The people of Fukushima are our top priority. For me and for TEPCO, we take full responsibility for the people of Fukushima and the reconstruction of the Fukushima area. That means we have to compensate businesses and individuals who were evacuated. That includes the loss of the farming, fishing, forestry, and everything. It's a huge amount of money, but we will take responsibility.

There is also cleanup of the contamination of the land, which is very difficult. Decommissioning the power plants is an additional challenge, but we think we have to take all the responsibility, of course with help from the government.

Q: What are the priorities in decommissioning Fukushima Daiichi?

It's a long-term plan. It took 10 years to take the fuel out of the Three Mile Island reactor, and our case is much worse. We estimate it will take 30 or 40 years because the radioactivity inside the buildings and inside the reactors is so high. Humans cannot go in to examine the situation. We have to develop robots that let us gather all the data. After that, we have to plan how to remove the fuel from the reactor. That's a very tough job. No one in the world has done it before.

At this moment, another difficulty is groundwater. We estimate 400 tons of groundwater floods into the building every day. Once the water is in the building, it becomes contaminated. It has to be pumped out so the remaining cooling systems keep functioning, but every day we have 400 more tons of radioactive water to deal with.

We can take out strontium and most of the other radioactive materials, but the present system cannot remove tritium. Figuring out that part is another thing we have to solve. Currently, we have to keep building tanks where we can store the dirty water.

Q: You were named president of the company in May 2012 in part because of your work on the compensation program for residents of the Fukushima area. The promotion seems like a mixed blessing.

This is a very tough job but somebody has to take the role. As it happens, I am the one. If I can be of any help in rebuilding this company, I'd like to do it. I've worked for the company for 37 years. I'm now 60 years old. This is the only company I've worked for. TEPCO sponsored me to study at SOM 30 years ago.

Q: Beyond managing the consequences of a nuclear accident that continues to unfold, you are leading a company that still has to supply power to a large part of Japan and still has shareholders as well as the public more broadly to consider. How do you balance the needs of all the different stakeholders?

I'm really sorry for our shareholders and investors because our stock price has fallen almost 90% and we cannot expect to offer a dividend for years. I'm really sorry for that, but, at this moment, of course, the needs of Fukushima are the number one concern.

I am also very concerned about TEPCO employees who have done very good work for the past two years. It has long been a prestigious company, so we have many excellent people. We cut salaries 20% to 30%. Our financial position is very vulnerable and we have to cut costs more.

Employees were very proud of working for this company, but the situation changed dramatically. They cannot tell people that "I work for TEPCO." The mass media have been really harsh on us. That hurts morale. That hurts their pride and confidence. The kids of employees have a difficult time at school because their parent works for TEPCO.

Despite the difficulties in every area and unfavorable perception in society, they work so hard. I am proud of them. Out of 40,000 employees, we had only 1.5% turnover last year. It's very small two years after the accident. They are fantastic people.

Q: What has it been like to lead a company through such a long-term challenge? What have you learned?

The government owns more than 50% of our stock and we moved from a company with auditors to a company with committees. Board members have more power to govern the company. It used to be that almost all board members had worked for TEPCO; now most come from outside. Some are lawyers, some are accountants, and some are presidents and chairmen of the other big companies in Japan. Just four of eleven come from TEPCO.

The atmosphere of the director meetings changed very much. It can be a good thing to have tense meetings. It's constructive to hear different opinions. They want TEPCO to recover, so I am learning a lot from them. The new board members can help reform the company. Although there are many, many challenges ahead of us, it's good that we are moving forward.

Internally, the most important thing is that we share the same goals. I spend as much time as possible with the members of the board, branch offices, and generation plants. Although I am extremely busy, if I have spare time, I always visit and talk with employees because communication is very important to moving forward in the same direction.

Q: How has the country's perception of nuclear power changed?

People's support for nuclear power changed dramatically right after the accident. Before that global warming was a big issue. People were worried about carbon dioxide. Three years ago then-Prime Minister Hatayoma declared, in front of the United Nations, that Japan would reduce carbon dioxide 25% from 1990 levels by increasing nuclear power up to 50% of the total electric power.

Then we had the accident and the same Democratic administration said that we'd shut down nuclear power by the 2030s. Energy policy shifted completely. It's not that easy to change. Japan does not have many indigenous natural resources. We have to import natural gas, coal, oil, even uranium.

After the accident, people started seeing nuclear power as very, very dangerous. All the nuclear power plants in the country were shut down. Most power companies had been getting 20% to 30% from nuclear sources. For TEPCO it was nearly 35%. Without that, TEPCO itself spent almost $30 billion to import fuel, gas, coal, and oil. Importing energy resources has created a huge trade deficit. We had to raise rates. Nobody welcomes tariff hikes, but the media claimed the price hike was due to TEPCO's bad management. People on the street tend to believe the news.

But gradually people have started to understand Japan's energy situation. We're not talking about building new nuclear power plants, but we stopped all the existing nuclear power plants. That isn't workable. People are realizing that. Some are saying it is better to restart the nuclear power plants as safely as possible.

Q: Are you also looking toward renewable energy sources?

Of course. We introduced a feed-in tariff system. We are buying high-priced power from all the renewable resources, but there isn't much capacity. Because of the politics of where to put wind power, that's limited. Geothermal may be possible but many possible sites are located in the national parks and it takes many years to build a geothermal plant there. We have increased our renewable sourcing, but it's limited. Trying to replace 20%, 30%, or 35% of our electric generation that had been from nuclear power, it's a huge amount.

Q: TEPCO released a report last year that noted concerns that if new countermeasures against severe accidents, including large tsunamis, were installed, host communities would fear that the current plants had safety problems. In looking back, what have you learned about managing risks, perceptions, and expectations?

I led the taskforce that produced that report. We wrote that we should not excuse ourselves by saying this accident was caused by a once-in-a-thousand-years tsunami. We think this was as an accident that we should've avoided. Looking back, there are many, many things that we could and should have done.

One of the things is risk communications. We chose to describe nuclear power plants as 100% safe when we talked with local people and local governments. We said there were so many protective measures it was 100% safe. That meant if we tried to add any new countermeasures it meant that the plant hadn't been safe. We were very much afraid of the public reaction. The explanation to the public that a nuclear power plant is 100% safe is a lot easier than that it is 99% safe with a 1% possibility of something happening.

I understand how we took that approach, particularly with the local people, but it was bad. It would have been better to explain that risk is contained and, in order to avoid anything bad happening, we have this kind of countermeasure and that kind of countermeasure. That type of approach is necessary.

Japan is the only country that has suffered through the aftereffects of atomic bombs in Hiroshima and Nagasaki. The people who are against the nuclear bomb tend to be anti-nuclear in all forms. It's very understandable.

There aren't easy ways to talk with people about nuclear power, but we have to face them directly, offer data, have a full and open discussion, and offer our complete explanations. It may take time, but that's probably the only way to communicate.

Q: What do you expect for the future with TEPCO?

That's a good question. I'd like to rebuild this company, although we're not going to go back to what we were. The electric power market is being deregulated, so we have to be more customer-oriented and more market-oriented to compete with other companies.

We may have lost the trust and confidence of much of society, but one good thing is we have excellent people still working for our company, so I think we can rebuild—not the same TEPCO but a new TEPCO.

Q: What do you think it would take to rebuild trust and admiration from the country?

It will take time. Destroying trust is easy. It can happen in one day. Restoring trust comes by supplying stable electricity without mistakes day after day. There is no shortcut. We have to pile up successes with the everyday routine job. It may take time, but we can do that.

Interview conducted and edited by Ted O'Callahan

Photograph above: TEPCO representatives guide an International Atomic Energy Agency-led mission to assess the progress in decommissioning the Fukushima Daiichi nuclear power plant.