Shakeup at Sony Puts Westerner in Leader's Role
By ANDREW ROSS SORKIN
and SAUL HANSELL

Published: March 7, 2005
http://www.nytimes.com/2005/03/07/business/worldbusiness/07sony.html?th  (must register to view original article)


The board of the Sony Corporation of Japan named Sir Howard Stringer its chairman and chief executive today, an unusual instance of a leading Japanese company turning to a foreigner to fill a top position, the company said in Tokyo.

Sir Howard, a Welsh-born former television news journalist, runs Sony Corporation of America and has helped revive the company's music and movie businesses in the United States. He will succeed Nobuyuki Idei, Sony's current chairman and chief executive, who had planned to retire next year after Sony's 60th anniversary.

This is a remarkable humbling for a company that once defined Japanese innovation and technological prowess in the years after World War II. In recent years, however, Sony has lost ground to American stalwarts like Apple Computer with its dominant iPod digital music player and a raft of upstart electronics manufacturers in China and South Korea.

It is also a recognition of the turnaround in Sony's entertainment businesses, which are among the most profitable parts of the company, riding blockbuster movies like "Spider-Man." And it underscores the changes that are sweeping Japan, once ascendant in the world economy, but suffering through a decade of little or no growth.

In a statement issued from Sony's Tokyo headquarters, Sir Howard hinted at future efforts to integrate the entertainment and electronics focuses of the company. "We look forward to joining our twin pillars of engineering and technology with our commanding presence in entertainment and content creation to deliver the most advanced devices and forms of entertainment to the consumer," Sir Howard said.

Sir Howard, a charismatic 63-year-old who does not speak Japanese, was born in Cardiff, Wales, and is an American citizen who splits his time between New York and his family's home in London. Before joining Sony in 1997, he worked for 30 years as a journalist, at CBS, at one point as a producer for Dan Rather at CBS, and ultimately went on to run that network.

Sir Howard was knighted by Queen Elizabeth in 1999 and has become known for being a likeable consensus builder, comfortable negotiating with both Hollywood divas as well as eccentric engineers and managers in Japan.

"Forgive the awful pun, but he has kind of oriented himself to his Japanese colleagues," said Peter G. Peterson, chairman and co-founder of The Blackstone Group and a former board member at Sony who helped recruit Sir Howard to the company. "It's a great achievement. They trust him. He's a harmonizer."

Mr. Idei, 67, was the first nonengineer to run Sony, and his departure will come two years into his three-year plan to overhaul the company. During his 10-year tenure, Mr. Idei used his background in marketing to reshape Sony into a more media-focused company.

Sir Howard, of course, is hardly an engineer himself. But in recent years he has taken an increasing interest in Sony's electronics business, particularly in areas that relate to music and movies. Sir Howard, who is also vice chairman of Sony's board, has tried to break through the bureaucratic logjams that have kept Sony - the company that invented the Walkman - from competing effectively against Apple's iPod, the dominant digital music player. And he has taken a key role in negotiating with other Hollywood studios to get support for the new Blu-Ray disk format, which Sony supports.

More recently, Sir Howard has been increasingly outspoken within Sony that the company has to break down its balkanized structure in order to move much more quickly in the marketplace. In a provocative speech to Sony managers in January he declared that "the business of Sony has become management not product design."

Sir Howard joins a small club of foreign executives who have taken the helm of major Japanese companies. This includes Carlos Ghosn of Nissan and Rolf Eckrodt, a German who led a failed effort to turn around Mitsubishi Motors.

Sir Howard does not keep a home in Tokyo, but he is expected to spend more time in Japan, a Sony executive said.

Still, he has shown that he can build bridges to all sides of that company.

"Howard is the ultimate diplomat," said Vic Pacor, the former head of Sony's television and home audio division in the United States. "He is even handed and will bring the kind of stability that the company needs," said Mr. Pacor, who is now president of D&M Holdings, a Japanese-American electronics company.

Allowing a foreigner to take over the reins of Sony would be one of the boldest moves a Japanese company could make. Most Japanese boards and executive ranks are filled with lifetime employees who win those spots more through their loyalty than through their creativity.

Yet in appointing a foreigner to its top spot, Sony's management appears to be completing a course originally set out in the 1950's by its co-founder, Akio Morita.

He recognized then that Sony had the potential to become a global powerhouse if it not only sold products overseas, but incorporated foreign thinking in its products, its brand and even its management.

Sony was the first Japanese company to list its stock on the New York Stock Exchange, something other Japanese rivals soon copied. Sony was also one of the first big Japanese companies to invite a foreigner to sit on its board.

Sony is now one of the most widely held Japanese companies. Foreigners hold more than one-third of Sony's shares, and foreign investors have had a growing influence on the company's behavior.

Kunitake Ando, Sony's president is also set to resign and be replaced by Ryoji Chubachi, 57, the company's executive deputy president who has recently has been in charge of Sony's production operations. Mr. Chubachi will also take charge of the ailing consumer electronics business, which still represents 70 percent of Sony's revenue.

The appointment of Sir Howard appears to be a blow to Ken Kutaragi, the 54 year old executive who built Sony's PlayStation video game unit into the company's most profitable division. A defiant and idiosyncratic engineer, Mr. Kutaragi, who has long been seen as the leading candidate to become Sony's next chief executive, was given responsibility for electronics and semiconductors two years ago. Now he will again just run the game unit. And he gives up his seat on Sony's board.

Several former Sony executives speculated that Mr. Kutaragi is still a likely candidate to ultimately become chief executive. But Mr. Kutaragi has been so outspoken within Sony that it would it would be too radical, even at this point, for Sony to appoint him as the deputy to Mr. Stringer. Mr. Chubachi, who is well regarded inside Sony, would be more acceptable to the engineers who run Sony's powerful internal divisions.

Since last year, Mr. Chubachi has been leading an effort to wring more efficiency from Sony factories by sharing technology and know-how among plants. He is one of the three key executives in charge of carrying out Sony's current revitalization strategy, along with Mr. Kutaragi and Shizuo Takashino, 61, the man who invented the original Walkman and is now in charge of improving product design.

Ultimately, Mr. Idei may have been forced to resign early because the financial results of the company have been consistently disappointing. In Japan, his tenure is most remembered for what has become called "Sony Shock" in 2003 when the company's shares fell by 25 percent after an unexpected quarterly loss.

In January, the company disappointed investors again saying that its profits would be less than it had earlier forecast for its fiscal year that ends March 31, mainly because it has had to lower prices on its core electronics products.

Mr. Idei has long painted lofty pictures of digital technology and how it could be combined with Sony's music movie and game content. Yet the strategy, which was first devised in the 1980's by Mr. Morita, has been slow to evolve. Sony's engineers initially resisted the growing power of the media divisions.

By the time Mr. Idei corralled them into cooperating, the company's electronics division was under had lost its way in its two most important product categories: televisions and portable music devices. It missed both the shift to flat screen sets and MP3 players like iPod.

One pet project of Mr. Idei's, the introduction of the Vaio computer line, has met with mixed results.

Mr. Idei has initiated a broad project, called Transformation 60, meant to increase profit margins through new products and reducing costs. The company has had successive rounds of layoffs and is moving more production to China. Yet profit margins are far from Mr. Idei's targets.

"Just because Howard becomes C.E.O. doesn't mean we can expect a dramatic change in earnings," said John S. Yang, an electronics analyst for Standard & Poor's in Tokyo. "I think Mr. Stringer will be facing as many problems as Idei-san did. But the good thing is that Sony has been proactive about changing."

Sir Howard will likely need to repeat his success in the media business on a much broader scale. In the United States, Mr. Stringer made a series of unusual management choices. One of his first hires was Robert S. Wiesenthal, a banker at Credit Suisse First Boston, who became the company's chief strategy officer and later its chief financial officer. He later brought in Andrew Lack, the former head of NBC, to run Sony Music and Michael Lynton, the president of Time Warner International to run Sony Pictures.

In 2003, he combined Sony's music business with Bertelsmann's BMG Music.

And last year, he had Sony organize an investor group to buy Metro-Goldwyn-Mayer, with its deep catalog of movies to bolster Sony's DVD business.

At the same time, Sir Howard orchestrated several severe waves of layoffs. Mr. Peterson says that Sir Howard's experience restructuring Sony's movie and music companies will help him take the tough actions necessary in Tokyo.

"At the end of the day, people want to cooperate with him in achieving his objectives," Mr. Peterson said.


Todd Zaun reported for this article from Tokyo and Ken Belson from New York.