Sony Corporation moved into globalization a long time ago. An upstart among Japan’s other cartels and combinations, the electronic and media giant was locked out of the traditional mutual back-scratching of capital raising. Founder Akio Morita was as much an innovator in investment as in technology. He made a virtue of necessity and went to the NYSE back in the early 1960s where he was a pioneer in investor relations.
As a result of his efforts, in the 1980s some 47 percent of Sony’s stock was held outside Japan. Unfortunately, that collapsed to 10 percent ten years ago as Japan’s bubble economy burst. Foreign holdings have regrown steadily since then, however, and currently stand at around 45 percent.
That growth matches Sony’s success over the last decade in its original core consumer electronics and its expansion into the media business with the acquisition of Columbia Pictures and CBS Records. It is symbolic of the global capital markets that no-one is sure whether to describe, say, Merrill Lynch buying stock in Tokyo, or Nomura in New York, as domestic or overseas holdings. But then, Columbia Pictures is as American as motherhood and apple-pie, so Sony has at least the corporate equivalent of a green card if not quite yet an American passport.
Three into one
Sony’s global spread has helped protect it against the vicissitudes of the Asian currency turmoil. Any loss of markets in the region is compensated by reduced manufacturing costs, and its yen-denominated export earnings rise if the currency declines against the dollar.
However, this is not self-evident to edgy investors, so it’s hardly surprising that Sony’s IR effort is global. The company has IROs in London and New York as well as a large departmental office in the Sony village in Tokyo. Its IR tactics and strategies have characteristics from all those locations, melded together into something distinctly Sonyish.
The rise in overseas and institutional holdings has caused a change in IR strategy. Three years ago, the IR department cultivated the stability of a 23 percent retail holding in Japan. That is now down to 13 percent and Sony has suspended the quarterly regional meetings it held for individual investors in Japan.
Chris Hohman, an American working in the Tokyo IR office, suggests that this was because of the decreasing number of individual shareholders, as well as the reduced level of contact with the Japanese security companies which used to arrange and sponsor such meetings. It has not helped that the bubble bursting, followed by stagnation in the Tokyo markets, has persuaded many Japanese that they will sleep more soundly if their cash is put under their mattresses than in wobbly banks and wobblier equities.
Japanese institutions hold 33 percent of Sony stock and other corporations hold a further 9 percent in an attenuated version of the country’s traditional interlocking holdings. However, New York IR manager Yas Hasegawa suggests that even in Tokyo US investors wield a disproportionate influence on stock prices since they are more active players than the generally longer-term Japanese holders.
Sony’s IR department fields a team of 15 overall: eleven in Tokyo, three in New York and one in London. There are three managers, Tats Sonada in Tokyo, Hasegawa in New York and a recent arrival from the finance department, Masakai Konoo. They report through Mayasaki ‘Mike’ Morimoto, a senior corporate vice president, to the CFO.
Sonada spent three and a half years in London as senior IR manager, giving him a total of eight years IR experience. Chris Hohman is an American graduate who studied in Tokyo, worked for a while in banking, and was then recruited to the IR department, where his Japanese and native English both prove useful for a global corporation.
Kenichiro Yoshida, who used to manage IR in Tokyo, has been promoted to the president’s office. Indeed, it’s a measure of the team spirit in the department that his former colleagues look upon that as a positive move. ‘It gives us direct contact there, and will help give Mr Idei [Sony’s president] a focus on IR,’ report Sonada and Hohman.
Analytical aim
The team is divided by business expertise within the group rather than aimed at particular types of investor. While Japanese investors may not be as demanding as their American counterparts, most of the worldwide analysis of Sony is conducted in Tokyo. The IR team deals directly there with around 25 dedicated sell-side analysts, as well as another two dozen or so who maintain a watching brief and can be counted on to turn up for earnings announcements.
On top of that, of course, there are the institutions and individuals to keep informed and happy. Sonada denies any specific targets except for a general preference for longer-term and value investors over the short-termers. He also points out that by comparison with Sony’s overseas sales of 72 percent, the stock ownership is not unbalanced. Sonada is more concerned about the problems the company is experiencing in finding out the actual names of investors in Europe, since even though Sony has hired a new agency to send information out to shareholders ‘it is getting difficult to get voting rights from them since we don’t know who the actual investors are in the UK.’
Those investors are unlikely to turn up for the annual meeting anyway, since Sony joins almost every other Japanese corporation in holding it on the same day in June. It’s all part of the collective corporate attempt to thwart disruption by the sokaiya, Japan’s racketeers who create havoc at annual meetings unless they are paid off.
Hasegawa goes back to 1984 to explain the advantages of collectivity for the meeting. ‘Then, we had a shareholders’ meeting at the end of January. There were not many companies that held their meetings in January, so it lasted 13 hours.’ At that time, the commercial failure of the technically successful beta video format had given the sokaiya the excuse they needed to disrupt Sony’s meetings. ‘Then,’ explains Hasegawa, ‘betamax was a major proportion of business. Nowadays none of the new standards impinge so significantly on the overall bottom line.’
Since then the company has been doing better than most on the Tokyo exchange, and there is a growing feeling that the gangsters should not be allowed to get away with their shakedowns. So Sony is ‘very seriously looking into changing the date,’ although Hohman chuckles that there’s a real possibility that other companies would change to match. In fact, the Japanese commercial code ties meetings to the accounting year, so there are not that many windows of opportunity for alternative meeting dates.
Sony also broke ranks with its Japanese corporate counterparts in 1995 when it began a stock options scheme for the board. It is still a pale imitation of US megabuck schemes – which may not be an entirely bad thing for shareholders – but it has already proven effective enough to be expanded. In all some 52 members of the board and officers have now joined the original scheme, which provides bonds with warrants that act as options, and this year an additional 200 executives were brought into a stock appreciation plan. Hohman rates it as a success in raising shareholder consciousness among senior management. ‘We put out the Tokyo prices twice a day, and the New York ADR price once – and we get calls if the quotes are a few minutes late.’
First preference
By Japanese standards, Sony’s attention to shareholder interests is somewhat idiosyncratic. Hohman argues, however, that it has not gone overboard. He suggests that while shareholder interests come first and employee interests second, ‘it’s a very close second,’ so the company is not likely to get into the slash and burn school of downsizing any time soon.
Sony also leans more to Japanese than American practice in terms of senior management’s relative lack of direct involvement in front line investor relations. ‘We’re working very diligently to change that. Right now we’re working on getting our president, Mr Nobuyuki Idei, in front of overseas investors,’ reports Hohman from Tokyo. That view is backed up by Hasegawa in New York who has to explain to all those American investors why they haven’t seen the boss since Akio Morita went back home.
Luckily, perhaps, for Hasegawa, most of the sell-side analysts’ coverage of Sony is done from Tokyo rather than New York, where they would be baying for top executive exposure. He deals with entertainment analysts and with the buy-side instead, but they are just as keen to see Idei. As a precursor, ‘Mike Masayoshi,’ the corporate senior vice president in charge of investor relations, has already increased his overseas presence, travelling every quarter to the US and every six months to Europe.
Hand-holding
In New York, Hasegawa maintains contact through conference calls that usually have some 50 investors and buy-side analysts logging in, and as many more calling in afterwards for the recording. After his time in Tokyo and London he notes ruefully: ‘US investors want more information, and more quickly, than the Japanese.’ He also notes that before the downturn at the end of August, investors had had two very good years with Sony, but they still needed plenty of reassurance and information about, for example, the positive and negative effects of the Asian currency crisis and the likely decline of PC sales.
From his own personal experience, he also remarks on the difference between the US and London. ‘I’ve found that US investors prefer conference calls followed up with lots of individual calls, while in Europe there are no conference calls and some phone calls, but not nearly as many,’ he says, attributing this to a combination of the size of the US and the activism of its investors.
Hasegawa has not had to deal with predatory visits from seriously activist investors like Calpers, however ‘Mr Morimoto has a close relationship with Calpers’ chairman and has even spoken at a San Francisco conference on corporate governance,’ he recounts, which puts Sony way ahead of the curve for Japanese corporations renowned for being as transparent as soy sauce in the dark.
Sony was also a pioneer in offering IR information on its web site, but it has now been overtaken by other companies. For example, while the site offers annual reports and quarterlies, it does not offer current pricing or press releases. This is undoubtedly a missed opportunity. Sony’s site (www.world.sony.com) has so many visitors from retail customers for electronic goods that it attracts a fair amount of interest from would-be retail investors, much of which is allowed to drift away again off line. The company is yet to offer an e-mail address on the site, for example. Nor has it followed in the footsteps of other electronics companies in offering web cast facilities for annual meetings.
Nevertheless, if Sony’s product development is anything to go by, there can be little doubt that once the company seriously puts its mind to electronic IR there will be innovations in store.
