Environmental Hazard

By Bryan Walsh / Tokyo

When Tomoyo Nonaka took over Sanyo, the struggling Japanese electronics maker, in June 2005, 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, instead announced a bold plan to transform Sanyo into a leader in environmentally friendly products. "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."

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, and she resigned as chairwoman in March. Her radical program, dubbed 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 shows 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 the demand for environmentally friendly products--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 many items. Take solar power, 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.

Nonaka also underestimated the difficulty of selling her plan internally. She reorganized Sanyo's 300 subsidiaries into three divisions, environment, energy and lifestyle, and 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 and is best known for refrigerators and batteries. "Talking about the environment doesn't send a good message to the old-timers who made Sanyo what it is," says Hideyo Waki, a business professor at Tokyo Denki University. It was even harder to persuade investors like Goldman Sachs and Daiwa Securities, which had sunk billions of dollars into a Sanyo turnaround, to be patient. Saddled with $3.4 billion in long-term debt, Sanyo only had the resources to restructure, not revolutionize.

With Nonaka gone, analysts expect Sanyo to sell losing divisions while focusing on its best product: rechargeable batteries. But even her critics say that Nonaka may simply have been ahead of her time. Better-financed companies are attempting the same kind of corporate reinvention with more success. Archer Daniels Midland, the U.S. food-processing giant, has become a hot stock-market play as America's largest producer of ethanol, an alternative fuel. "The direction toward environmental issues is the right one," says Tatsuya Mizuno, an analyst with Fitch Ratings. But it's too soon for some CEOs to bet that going green will get them out of the red.

-- with reporting by Yuki Oda, Toko Sekiguchi / Tokyo