Reuters: “Sony’s Hirai faces attack from activist ‘old boys’: sources”

(Reuters) – A group of former top Sony Corp executives has delivered an unusually blunt critique to the firm's chief executive Kazuo Hirai, accusing him of losing sight of innovation by focusing on cost-cutting.

At a meeting at Sony's Tokyo headquarters last Thursday, five former executives, including PlayStation creator Ken Kutaragi, took Hirai to task for failing to encourage the kind of creativity that helped produce iconic gadgets such as the Walkman, according to three people familiar with the meeting.

This sharp, behind-the-scenes criticism by alumni, known in Japan as old boys who can retain influence long after retirement, represents a new test for Hirai just as he has fended off pressure from activist investor Daniel Loeb to sell off part of Sony's entertainment business.

The move threatens to undermine him at a time when he is trying to show investors and employees that he can lead Sony back to growth after the restructuring that cut around 15,000 jobs.

Sony is like a ship that has set sail in the stormy weather of the electronics business, led by a captain who's using a flawed nautical map, Tamotsu Iba, a former Sony CFO and vice chairman, said in a letter sent to board members and management ahead of the meeting, which he attended.

He doesn't have the sensibility or intellect to notice it's wrong. Do board members, who should be in a position to supervise the captain, not notice? Are they tolerating it, not willing to point it out?

A copy of the letter was reviewed by Reuters.

Iba's letter, which was a follow-up to a similar letter he sent in January, did not directly call for Hirai's removal but questioned his abilities as CEO and demanded hiring more engineers and appointing fewer outsiders to the board of directors.

Iba, Kutaragi and Sony all declined to comment for this story.


Former company executives can wield a lot of influence in Japan.

Ex-Sony executives played a role in the exit of Hirai's predecessor Howard Stringer, people involved at the time said. At automaker Honda Motor Co, Takanobu Ito stepped down as CEO in February this year after coming under criticism from two former CEOs over his handling of quality issues.

At Sony, Hirai has had to cut earnings forecasts six times since becoming CEO in 2012, and while the company has just raised its financial estimates for the year that ended in March, it still expects a net loss of 126 billion yen.

Still, he has begun to win more confidence from investors, with Sony's shares hitting a seven-year high last Thursday.

Hirai also has to strike a balance between maintaining employee morale while cutting thousands of jobs to revamp Sony's electronics business. After splitting off its ailing TV business last year, Sony has announced it will do the same with other units in its electronics business.

Some Sony staff say they are worried more units could go the same way as the Vaio PC division which was sold off last year.

Sources said Iba and his allies, while holding Sony shares, probably do not hold a large enough stake to vote out Hirai or call a shareholder meeting. They also did not appear to have any alternative CEO candidates in mind.

But if they decide to take their appeal to shareholders, they could try to piggy-back on a move by proxy advisory firm Institutional Shareholder Services (ISS), which recommends investors vote against returning management at Japanese companies which fail to achieve a five-year average return on equity of at least 5 percent.

Most fund managers, however, are expected to ignore a negative recommendation from ISS on Sony given the turnaround of the past year that has seen Sony's shares surge by 90 percent.

(TOKYO | BY RITSUKO ANDO AND REIJI MURAI; Editing by Rachel Armstrong)

The Board Director Training Institute (BDTI) is a "public interest" nonprofit in Japan dedicated to training about directorship, corporate governance, and related management techniques. It is certified by the Japanese government to conduct these activities as a regulated nonprofit. Read a summary about BDTI here, and see a menu of its services for both corporations and investors here.

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