The hedge-fund billionaire who shook up Yahoo’s leadership last year is taking his brand of shareholder activism to Japan. Daniel Loeb wants Sony to spin off its movie and music division and focus on reviving its consumer electronics business.
Loeb’s fund, Third Point, has become Sony's biggest shareholder by amassing a $1.1 billion stake. But his task may be more difficult than he expects. There’s a long line of powerful American investors who have been frustrated, thwarted and humbled by Japan’s business traditions and entrenched bureaucracy.
American companies are expected to put shareholders first. Japanese thinking is different, rooted in the country's history.
“The company was seen as a kind of a communal organization that owed its allegiances to its employees, to its customers, to suppliers, to management, not to the shareholder,” says Arthur Alexander, an adjunct professor at Georgetown University and former president of the Japan Economic Institute.
Historically, American investors, including the colorful T. Boone Pickens, have found that asking for big change provokes a strong Japanese reaction: “Shock and fear,” according to Richard Linowes, an American University management professor with experience at Goldman Sachs and Accenture.
“But I do think also that there’s this recognition that sometimes you need an outsider to bring in another view,” he adds.
It’s an experience Josh Schechter is familiar with. He’s co-president of Steel Partners Japan Asset Management.
“It’s often difficult for outsiders to come in right off the bat and demand changes to longstanding business practices,” Schechter explains.
In a previous iteration, Steel Partners lost a six-year battle for change at a Japanese condiment company, Bull-Dog Sauce. There has also been success. Schechter now holds a seat on the board of Aderans, a Japanese wig maker.
Even when Japanese managers know hard decisions are necessary, they may be reluctant to go against longstanding business traditions. Foreign investors can give them cover for change.
“It is sometimes helpful for management to just say, ‘Look, we have a sizable foreign interest and we have no choice,’” says Ulrike Schaede, professor of Japanese business at University of California, San Diego.
She and other Japan watchers point out that Sony is used to hearing foreign perspectives. After all, until last year, its CEO was a British-born American. And Sir Howard Stringer is still chairman.