How not to take over a company like Sony

Outside view of the Sony headquarters building in Tokyo.

Outside view of the Sony headquarters building in Tokyo.

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.

Kai Ryssdal: You know the phrase "activist shareholder"?  Well if you want to be one, it helps a whole bunch to be really, really rich.

Daniel Loeb is. Both. His hedge fund -- called Third Point -- has bought itself a billion-dollar stake in Sony. Loeb is after that company to spin off its movie and music division and focus on reviving its consumer electronics business.

But even being Sony's biggest shareholder may not be enough clout. Marketplace's Mark Garrison reports on how powerful American investors often get a chilly response in Japan.


Mark Garrison: American companies are expected to put shareholders first. Japan specialist Arthur Alexander at Georgetown says the Japanese view is different and rooted in history.

Arthur Alexander: 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.

Historically, American investors, including the colorful T. Boone Pickens, have found asking for big change provokes a strong reaction. Richard Linowes is an American University management professor.

Richard Linowes: Shock and fear! But I do think also that there’s this recognition that sometimes you need an outsider to bring in another view.

Josh Schechter knows this first hand. He’s a co-president of Steel Partners Japan Asset Management.

Josh Schechter: It’s often difficult for outsiders to come in right off the bat and demand changes to longstanding business practices.

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 holds a seat on the board of Aderans, a Japanese wig maker. Ulrike Schaede, professor of Japanese business at U.C. San Diego, says foreign investors can give Japanese managers cover for change.

Ulrike Schaede: It is sometimes helpful for management to just say, look, we have a sizable foreign interest and we have no choice.

She and other Japan watchers say Sony is used to hearing foreign perspectives. Remember, until last year, its CEO was a British-born American. And he’s still chairman. In New York, I'm Mark Garrison, for Marketplace.

About the author

Mark Garrison is a reporter and substitute host for Marketplace, based in New York.

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