Shareholders Come Out Swinging in Japan

Foreign CEOs like Sony's Howard Stringer and Nissan's Carlos Ghosn are feeling the heat from grillings at annual shareholder meetings

by Kenji Hall

Who can blame Sony's (SNE) Howard Stringer for sounding a bit self-congratulatory? Since taking the helm nearly two years ago, the Japanese company's first gaijin chief executive has ticked off nearly every one of the ambitious targets on his reform checklist for the $71 billion electronics and entertainment giant. With Sony's profit outlook improving, Stringer's optimism only seems to echo what financial analysts have been saying about the company for months.

But investors still found plenty of other reasons to criticize Stringer & Co. during Sony's annual shareholder meeting June 21 at a Tokyo hotel. One vocal shareholder, Koji Morioka, a Kansai University economics professor and founder of nonprofit shareholder activist group Kabunushi Ombudsman, submitted the only proposal that didn't come from the board of directors.

For the fifth consecutive year, Morioka demanded full disclosure of top executives' pay and recommended a revision to the company's articles of incorporation. Unlike many publicly listed U.S. companies, Japanese firms rarely reveal how much individual executives and directors make. Sony is no exception. It has repeatedly expressed opposition to shareholders' requests for more information. "I'm dissatisfied with the company's avoidance of this issue," Morioka told the gathering. He condemned Sony's "lack of transparency" and attacked its decision to "ignore such a large number of shareholders."

Record-Breaking Forecast

"We think we offer sufficient disclosure," President Ryoji Chubachi replied. Morioka's measure failed to get the two-thirds approval it needed to force the company's hand, but a growing number of shareholders made it clear that they favor more openness. More than 44% of shareholders supported the proposal, up from 42% last year.

Given Stringer's record, you would think shareholders shouldn't have much to gripe about. The Welsh-born U.S. executive has overseen a revival in the core electronics division, which accounts for 70% of overall sales, and has improved companywide profit margins. This fiscal year through March, 2008, Sony has forecast a fivefold rise in operating profits to nearly $3.6 billion on a 6% gain in sales to $71 billion. Its prediction for $2.6 billion in net profit would be the company's best ever.

The upbeat figures are one reason Sony's shares have rocketed 26.8% higher this year. "The company remains our top pick in the consumer electronics sector," Deutsche Bank (DB) analyst Yasuo Nakane wrote in a June 18 report.

Yet among the questions from Sony's shareholders were many that reflected skepticism about the turnaround. One investor, who identified himself by his surname, Sakata, called the performance of the Walkman portable music players "shameful" and demanded to know why the Apple (AAPL) iPod was dominating a global market that once belonged to Sony. Others were just as harsh: Why is the gaming division losing $1.9 billion if sales are up, and why wasn't there a fall guy? Why should the yen's weakness hurt Sony if it's hedging against such a possibility? If Sony was recovering, why were dividends still so low?