Global Economics

Sanyo's Chairwoman Exits


A former TV personality, Tomoyo Nonaka attempted to run Sanyo on a green platform, but ended up leading it to losses

It might have been to atone for a recent accounting scandal or the denouement of a struggle with Sanyo Electric's (SANYY) board of directors. Or, if you buy the company's official stance, "personal reasons." In any event, Sanyo Chairwoman Tomoyo Nonaka suddenly resigned her post on Mar. 19. And whatever the reason, one thing seems clear: It will be hard to script a happy ending for the 52-year-old former TV journalist's stint as Sanyo's top executive.

She led the company for nearly two tumultuous years. Since she was trotted out as the company's new chief executive officer in April, 2005, the company stock has dropped by almost half, erasing some $2.6 billion from the Osaka company's market cap. Then there was the embarrassing multibillion dollar bailout in January, 2006, by Goldman Sachs (GS), Daiwa Securities SMBC, and Sumitomo Mitsui Financial Group.

And last month, things seemed to go from bad to worse when Sanyo revealed that it was being investigated by the Japan's Securities & Exchange Surveillance Committee (SESC) for allegedly failing to book losses made on shareholdings in ailing subsidiaries and affiliates (see BusinessWeek.com, 2/23/07, "/globalbiz/content/feb2007/gb20070223_364008.htm"). "It's only natural that someone take responsibility" for the accounting mess and everything else, says Credit Suisse tech analyst Koya Tabata.

Failure of Big Ideas

Nonaka's departure didn't involve any of the usual public self-flagellation or anointing of a successor. In fact, for hours after the Japanese financial daily Nikkei reported her resignation, Sanyo refused to comment on the matter. According to The Nikkei, Nonaka had pushed for a thorough investigation of the company's accounting practices and stronger corporate governance, and when the board overruled her, she quit in protest. Finally, in the evening hours, the company issued a statement saying she had left for "personal reasons," but declined to elaborate further.

In many ways, Nonaka's rise and fall resembles that of another top Japanese electronics chieftain who left the stage on a similarly low note: Sony's (SNE) former chairman and chief executive Nobuyuki Idei. Like Idei, who laid out his vision for Sony as a leading broadband entertainment powerhouse, Nonaka was behind Sanyo's recasting as an eco-friendly company.

When she unveiled her "Think Gaia" slogan, the message for investors was straightforward: Sanyo would survive in the hyper-competitive global tech industry by focusing on green products such as rechargeable batteries and solar panels. But like Idei, who stepped down in 2005, Nonaka ultimately failed to translate her big ideas into better financial results.

Poor Earnings

She leaves just weeks before Sanyo is to issue yet another dismal earnings report. In the fiscal year through March, the company expects its third straight net loss—nearly $430 million. It was hurt by a 5.3% fall in sales to $18.8 billion and ballooning costs as it continues a restructuring program. That's a slight improvement over the $1.76 billion shortfall the year before.

But it's far less impressive when you consider that before last November, the company had been predicting a net profit of $51 million on sales of $21.2 billion for this year. The earnings revision sent Sanyo's shares plunging to a 31-year low (see BusinessWeek.com, 11/28/06, "Goldman's Mission: Stop Sanyo's Slide").

Analysts think Sanyo could even fall short of its own diminished forecasts. One of the biggest problems is Sanyo's consumer-electronics business, which accounts for 45% of sales. The company has been laying off workers globally and shutting down picture-tube TV factories in Japan and Europe. But its cell phones do a fraction of the business of leaders Nokia (NOK), Motorola (MOT), and Samsung Electronics, and in digital cameras it's brand name doesn't have the cachet of, say, Sony, Canon (CAJ), or Panasonic (MC).

Investor Skepticism

Repairing Sanyo would have been a tall order for any CEO. And the odds were stacked against Nonaka for another reason: She had no tech background and no experience heading a business. Though she was a widely recognized TV personality with a nightly business show, and had served on government advisory committees and corporate boards after leaving TV, she hadn't ever managed a large organization (see BusinessWeek.com, 5/2/05, "Sanyo's Surprise CEO").

Nonaka had been asked to save Sanyo after a natural disaster led to a financial one. In October, 2004, an earthquake measuring 6.8 on the Richter scale rattled Japan's Niigata prefecture, northwest of Tokyo, forcing the company to stop production at a chip factory. Sanyo wasn't insured against earthquake damage, and the temblor ended up costing the company hundreds of millions of dollars—leading to Sanyo's biggest loss ever.

From the start, Nonaka's appointment raised eyebrows in the investment community. Skeptical analysts saw her selection as a convenient cover for Sanyo's septuagenarian chairman, Satoshi Iue, to groom his son, Toshimasa, by promoting him as Nonaka's No. 2. As her tenure stretched on, Nonaka struck many observers as the wrong person for the job.

"She came off as more style than substance," says one analyst in Tokyo who requested anonymity. In meetings with analysts and investors, she peppered her presentations with English words, but got hammered for talking too conceptually about her reform plans. At news conferences, she often left her deputies to field questions from journalists.

Iue to the Top?

Many thought she would get dumped in January, 2006, after Goldman, Sumitomo Mitsui, and Daiwa SMBC paid $2.6 billion for preferred shares and five seats on Sanyo's board. But her management team seems to have gotten a reprieve with its decision to unload part of the semiconductor division in July. And despite her reported pressuring of Sanyo's board for a house-cleaning, many thought her ouster was overdue.

Sanyo hasn't named a replacement for Nonaka. "We don't know who the next person will be," said spokesman Aaron Fowles. The most likely choice is Toshimasa Iue. The 44-year-old Boston University MBA built a track record as the head of the company's battery division from 1999. It's now the world's leader in lithium ion batteries in laptops and other gizmos and sells nickel hydride batteries to carmakers such as Ford (F) and Honda (HM). Though the unit ran into some trouble this winter after it was forced to recall batteries used in Lenovo ThinkPad computers, it's still the company's most profitable division. Credit Suisse, which rates the stock a "sell," expects the division's margins could reach 9% this year, from more than 6% last year.

If Iue gets the nod, he will have to make a convincing case that his family name isn't the only reason he's on top. But with analysts expecting Sanyo's operating profits to edge higher over the next two years, he could be the beneficiary of Nonaka's unfortunate timing.


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