DIPLOMACY TRUMPS TECHNOLOGY

[Anonymous]

At Sony, Diplomacy Trumps Technology

(March 05)–Sir Howard Stringer was in Los Angeles late
last month, shuttling among the weekend’s pre-Oscar parties given by the likes
of Barry Diller, the Hollywood mogul turned Internet commerce magnate, when his
cellphone rang.

Nobuyuki Idei,Sony’s chairman and chief executive and Sir
Howard’s boss, was calling from Japan with some startling news to share:Sir
Howard,chairman and chief executive of the United States unit of the Sony
Corporation, was almost certainly to become Mr. Idei’s successor,according to
people closely involved in the succession plan.

The final choice had pitted Sir Howard, 63, a former
television news producer and executive, and for the last eight years, overseer
of Sony’s music, movie and electronics divisions in the United States, against
Ken Kutaragi, an executive deputy president considered the company’s chief
visionary. It was Mr. Kutaragi, 54, who built Sony’s PlayStation video game unit
into a roaring success.

By choosing Sir Howard, Sony gave the triumph to the
diplomat over the technocrat, the sophisticated corporate manager rather than
the brilliant but less polished Mr. Kutargi.

The groundbreaking Japanese technology and entertainment
company had stumbled financially and technologically in recent years partly
because of divisions between its engineering and its entertainment units. It
needed someone to pull its parts together so that it did not lose more ground to
relative newcomers in consumer electronics like Apple Computer and its iPod, or
the rapidly growing electronics manufacturers in South Korea and China that are
combining next-generation flat-panel television and superclean chip-making
operations at lower cost.

So, after a weeklong series of discussions in Tokyo to
determine the new management structure, Mr. Idei made one more call, this time
to Sir Howard last Friday night at his English manor house in Oxfordshire. Sir
Howard was told he needed to be in Tokyo for the announcement yesterday that he
would be named the first non-Japanese chief executive at Sony in its 59
years.

A limber corporate politician, Sir Howard has a knack for
winning trust and respect even when delivering bad news. His reputation, for
instance, survived the layoffs of hundreds at CBS News. And that image has
served him well in a country like Japan and a company like Sony, known for their
consensual culture and where the in-your-face corporate politics of American
business is rarely welcome.

“He can explain each side to the other,” said Dan Rather,
anchor and managing editor of the “CBS Evening News,” a former colleague and a
friend who has known him for more than 35 years. “Howard is a marvelous
translator.”

At a news conference yesterday, Sir Howard outlined his
vision for the company. “We would accelerate cross-company collaboration,” he
said, “thereby revitalizing the company and promoting creativity. Growth cannot
be achieved just through cost reduction. We need new projects, new ideas, new
strategies, new alliances and a shared vision. All of our managers must have the
authority and the will to manage.”

That soothing language seemed to satisfy even Mr. Kutaragi.
Despite losing the battle to Sir Howard, he seems to have been persuaded to
accept a lesser role at the company for now, returning to the game unit to take
charge of finishing development of the successor to PlayStation 2. Mr. Kutaragi,
company insiders said, is still young enough to ultimately emerge as Sir
Howard’s successor.

Sir Howard – hired by Mr. Idei in 1997, when Sony was
trying to recover from debacles at its Columbia Pictures unit – at first was in
charge only of an odd mix of properties that included movie theaters and a
shopping mall. But soon he was handed the American electronics division, then
movies and music.

He strengthened relations with Mr. Idei by inviting him to
events like the World Economic Forum in Davos, Switzerland, and to small dinner
parties he held in New York. He speaks little Japanese, but Sir Howard – a
native of Wales, graduate of Oxford, Vietnam war veteran, producer of the
“Evening News” with Mr. Rather and chief of all of CBS – can bond with almost
anyone, according to friends and colleagues.

“In my view, he was Idei’s confidant in whatever degree you
can become Idei’s confidant,” said John Calley, a former head of Sony Pictures
Entertainment, who reported directly to headquarters in Tokyo before Sir Howard
arrived at Sony. “He’s the only one I know of who can manage the Japanese and
the show-bizzers.”

Sir Howard’s Hollywood schmoozing skills were on display at
the end of last month. Although he did not attend the Academy Awards, he made
time for the parties that dot the Hollywood landscape before and after.

And on the way to the annual festivities presided over by
Bryan Lourd of Creative Artists Agency and Ed Limato of International Creative
Management, he had the limousine rented by Mr. Calley for the occasion pick up
Diane English, the creator of “Murphy Brown” – a hit at CBS when Sir Howard was
there and who is now writing a screenplay for Sony.

“He’s friends with most of the major stars,” Mr. Calley
said.

But financial results played what is probably a more
important role in assuring Sir Howard’s rise at Sony. During the fourth quarter
of 2004, Sony’s movie business accounted for 13 percent ($178 million) of Sony’s
operating profit, though it is a relatively small piece of the company’s overall
operations. While the turnaround of the American operations is not yet complete,
the merged music division’s gains have come in large part from cost-cutting
measures.

Sony’s American division is performing much better than its
Japanese counterparts. Last quarter, for example, Sony’s electronics business,
though responsible for around 70 percent of revenue, brought in just 36 percent
of its operating income. And for the fiscal year ending on March 31, Sony
expects an overall operating profit margin of just 1.5 percent.

“Talk about trust; he doesn’t have to earn it,” Mr. Calley
said. “He has it. And he’s not going to lose it.”

Sir Howard’s adeptness at corporate politics, his friends
and colleagues say, should prevent that from happening. “He has an excellent
nostril for where the power is, where the power really lies, not where it looks
like it is,” said Mr. Rather, noting Sir Howard’s “almost coyote-like ability to
recognize who is on the come, who’s going to be potent.”

For example, Mr. Rather said, when Laurence A. Tisch began
buying up shares of CBS through his family’s Loews Corporation in the middle
1980’s, Sir Howard recognized that Mr. Tisch was the power player and that Jay
Kriegel was his confidant and trusted associate. When Mr. Tisch became the white
knight against hostile takeover attempts and eventually chief executive, Sir
Howard was well situated to prosper from the shift.

“People in news are usually tone-deaf to these things,” Mr.
Rather said. “Howard is definitely not tone-deaf.”

With his sensitive antennas, Sir Howard, along with other
executives, had heard the buzz of coming corporate changes in Tokyo. As a
result, he was not completely surprised when in January Mr. Idei encouraged him
to be provocative in his speech at a quarterly management conference, according
to someone at the meeting who talked to Sir Howard.

In the speech, Sir Howard warned that Sony had to beware of
becoming top heavy, to avoid looking like a mushroom, where the senior
management layers threaten to overpower and strangle the creativity of the
engineers and the products they create.

He pointed to examples in the United States, where moves
like the introduction of shared back-office services across three operating
companies (music, movies and electronics) cut about $700 million from the budget
(and 9,000 of the 30,000 employees).

A combination of these cuts and other restructuring efforts
also did away with much of the intradivision politicking at the electronics
unit, which is now the most profitable of Sony electronics companies.

And in words signaling that the rest of Sony could be in
for more such restructuring, Sir Howard told those in attendance that they could
also achieve such results if they could withstand the pain of layoffs.

[Author]

March 9, 2005 at 9:50 AM