Unfriendly Environment

Whe

n Tomoyo Nonaka in June 2005 took over Sanyo, the venerable but struggling Japanese electronics maker, she already had one strike against her. Nonaka was a female CEO in a business culture that is overwhelmingly male. A more timid executive would have charted a cautious course, focusing on slashing costs at a company that lost $1.6 billion in its 2005 fiscal year. But Nonaka, a former TV journalist with no executive experience, instead announced a bold plan to transform Sanyo into a leader in the production of environmentally friendly products like solar panels and energy-efficient refrigerators. "I think it's clear that the 21st century is about turning away from oil to alternate forms of energy," Nonaka, 52, told TIME shortly after her appointment as Sanyo CEO and chairwoman. "It's about sustainability, and Sanyo will be the solution provider for this new world." She dubbed her program "Think Gaia."

It turned out the old world wasn't ready for Nonaka's vision. Sanyo's losses continued to mount. Nonaka lost the CEO title last year when the position was eliminated; on March 19, she resigned as chairwoman shortly after the company reported it might have to restate earnings for the four years through March 2004 amid a government investigation of possible accounting irregularities. While Sanyo was beset by problems before Nonaka arrived, including cutthroat price competition from South Korea and China, her attempt to radically change the corporate mind-set had become a distraction from urgent problems, analysts said. She had to go. "Think Gaia was a very good strategy," says Yasuyuki Onishi, a Tokyo-based financial journalist who wrote a recent book on Sanyo's woes. "But it wasn't the right time to think Gaia. Sanyo had to think for itself."

Nonaka's failed turnaround effort is a cautionary tale showing that, while going green may save the world, it may not save your business. With climate change and high oil prices in the headlines, corporations everywhere are rushing to show off their green credentials. But doing your bit to reduce carbon emissions is not the same as basing profits heavily on the sale of environmentally friendly products, a field that—niche-market successes such as the Toyota Prius hybrid car notwithstanding—has yet to reach critical mass.

That's because the economics of green products still don't make sense for average consumers, who remain unwilling to pay premium prices for appliances and other big-ticket items offering questionable individual benefits. Take solar power, an area where Sanyo is a significant competitor. Although numerous start-ups in the U.S., China and Taiwan have been investing in the technology over the past two years, generating electricity from solar panels is still at least twice as expensive as buying it from the fossil fuel-reliant U.S. utility grid. Experts say the solar-power industry will need support from government subsidies and incentives for years to come. Not only that, demand for energy-efficient products (as well as the stock prices of companies that sell them) tends to rise and fall with the price of oil, making revenue streams unpredictable.

Nonaka, however, chose to take a long-term approach, anticipating that environmental concerns in coming years would become an increasingly important factor in consumer buying decisions. She reorganized Sanyo's 300 subsidiaries into three divisions: environment, energy and lifestyle. The company began marketing new products such as a battery that could be recharged with a solar panel and a washing machine that recycled water. These moves were a hard sell at a proud manufacturing company like Sanyo, which started by making bicycle lamps in 1947. "What Sanyo does best is make batteries and industrial air systems and refrigerators," says Hideyo Waki, a business professor at Tokyo Denki University. "Talking about the environment doesn't send a good message to the old-timers who made Sanyo what it is."

Ultimately, it was even harder to convince outside investors including Goldman Sachs and Daiwa Securities, which had sunk billions of dollars into a Sanyo turnaround, to be patient. The reality is that Sanyo, saddled with $14.7 billion in debt on Sept. 30, according to the company's most recent financial reports, only had the resources to restructure, not revolutionize. With Nonaka gone, analysts expect Sanyo will sell losing divisions while focusing on its best product: rechargeable batteries. That strategy could return Sanyo to profitability, but it won't make the company one that "solves the problems that the world is suffering," as Nonaka once put it.

Even her critics say that Nonaka may simply have been ahead of her time. Other, better-financed companies are redefining their images by moving aggressively into environmentally friendly products. For example, Archer Daniels Midland, the U.S. food-processing giant, has become a hot stock-market play because it is America's largest producer of ethanol, an alternative fuel seen as a way to reduce U.S. dependence on oil imports. "The direction towards environmental issues is the right one," says Tatsuya Mizuno, an analyst with Fitch Ratings. But it's too soon for CEOs to bet their jobs on the expectation that going green will get them out of the red.