The affect of Shareholder Value Delivery on Corporate Management

Introduction

In present decade, multinationals corporate management personnel have the vital task of

operations management in highly complicated and diverse business environment. The

consideration for keeping the interests of all stakeholders safe while making corporate decisions

has gain considerable importance. Globally, this awareness has become concern for senior

executives in these corporations. This trend is found not only in Europe and United States but

also in Japan where normally companies are less burdened due to many cultural, social, and

business obligations.

Continuous renewal is the biggest challenge for the large businesses these days, corporate

growth, enhancement of core competencies, and efficient operations are the tools for survival in

cut throat competition. Prahalad (1994) argued that organizations should balance their sole

commitment to enrich share holders value with the fulfillment of concern for stakeholders

including employees, customers, suppliers etc (45). Investors’ wealth creation is highly

dependent on the performance of company in satisfying needs of these stakeholders, success in

meeting any one’s need is not fulfilling the desire of ultimate success.

On the other hand, the success of any business strategy is judged on its ability to increase

shareholders value. Investors and managers use efficient measures to cut down costs and to

maximize returns. Reengineering, downsizing, mergers, innovations, and acquisitions are some

of the viable techniques used by these decision makers to achieve sustainable growth. Besides

bringing the stakeholders value at stake, these decision makers also needs a rationale for

decisions related to enhancing shareholders’ value. Tangible definition of performance, its set
standards, and an objective bases for rewards for performance are some of the major issues to be

addressed in corporate management.

Japanese Corporations Structure

To illustrate the issues related to share holders’ value decisions, Sony corporation is

selected in this study. The present financial crunch in Asia has affected Jpan very drastically, the

decline in stock

In Asia, the recent catastrophic decline in regional stock markets, continuing currency crisis and

failures of major financial institutions and industrial corporations have increased domestic and

international interest in corporate governance. Nowhere is this greater than in Japan where

financial institution reform has catapulted this to the fore. We argue for the co-existence of

stakeholder and shareholder-centered corporate governance systems in Japan. Namely, changes

in ownership structure and institutional expectations would force firms to focus on maximizing

shareholder value even where the interests of stakeholders are more emphasized. It suggests an

environmental selection mechanism to ensure the emergence of appropriate corporate

governance mechanisms to solve the agency problem. Further, the loss of competitiveness and

the prolonged poor performance of firms can change the institutional norms to emphasize asset

efficiency and transparency rather than stability and business ties.

Sony Corporation
Sony was founded in 1946 by Masaru Ibuka and Akio Morita. unique blend of product

innovation and marketing savvy, grow into a more than $60 billion global organization.

Ibuka was a practical visionary who could foretell what products and technologies could be

applied to everyday life. He inspired in his engineers a spirit of innovation and pushed them to

reach beyond their own expectations. Ibuka also fostered an exciting working atmosphere and an

open-minded corporate culture.

Akio Morita was a true marketing pioneer who was instrumental in making Sony a household

name all over the world. He was determined to establish the Sony brand.

Video innovation was also a priority for Sony engineers. The road towards building a high

quality color television set was quite a strugglethe Trinitron television has set the standard for

picture quality and design.

it became the first Japanese-based consumer electronics manufacturing facility in the United

States.

Further, without Morita, the world would never have known the Walkman® personal stereo. His

excitement and faith in the product’s future success was the true driving force behind its

existence.the product’s compact size and excellent sound quality attracted consumers and,

ultimately, ignited the personal audio revolution.

Sony was transformed from an electronics company into a total entertainment company through

the establishment of the music, pictures and gaming businesses.

Sony acquired CBS Records in 1988 and Columbia Pictures in 1989, which today form Sony

Music Entertainment (SME) and Sony Pictures Entertainment (SPE) – two of the world’s largest

content producers.

with PlayStation and, most recently, PlayStation2, Sony has become the most successful game

manufacturer ever. Idei is credited with reinventing Sony’s business model for the networked

society. By complementing Sony’s core competencies with partnerships and collaborations from

other companies, Sony is on its way to becoming a Broadband Entertainment Company.

Sony: The Leader in Product Innovation

The new millennium is here and Sony has plenty to celebrate. The company’s approach – doing

what others don’t – has paid off, in the form of great products that people covet.

Throughout its history, Sony has demonstrated an ability to capture the imagination and enhance

people’s lives. Today, Sony continues to fuel industry growth with the sales of innovative Sony

products, as well as with the company’s convergence strategy.

Through research and development, the company has made considerable inroads in the areas of

professional broadcasting Sony’s future brand success will be determined by how the company
meets the challenges of change. Sony has always led the market in terms of innovation. But in a

digital networked world, products will no longer be developed with just hardware in mind. The

convergence of technologies – consumer electronics, computing and telecommunications – is a

reality, with new competitors forming and consumer mindshare up for grabs.

Sony’s vision is to give consumers easy, ubiquitous access to entertainment and information

anytime, anywhere – no matter whether the content comes from cable, satellite, terrestrial,

packaged media or the Internet.

However, even in this broadband network era, one fact about Sony remains the same: the

company’s fundamental philosophy of providing products that are fun to use.

Promoting a World Class Brand

The phenomenal strength of the Sony brand worldwide is surely a testament to the company’s

reputation for producing innovative products of exceptional quality and value. And while

traditional brand theory says brand essence should be narrowed down to one element, Sony

celebrates brand diversity -- with the Trinitron, VAIO and Walkman sub-brands, to name just a
few, each connecting with consumers across various lifestyle segments.

However, the company doesn’t just rely on brilliantly executed advertising campaigns to secure

consumer attention. The company utilizes world class public relations to enhance Sony’s value,

reputation and brand image. Communications campaigns are conducted on both an individual

product and strategic platform basis. This process ensures exposure for the company’s most

important products as well as for the company’s role in key industry issues that cross multiple

product categories and disciplines, including electronic music distribution and digital television.

Sony executives felt the need to clearly articulate the meaning and values inherent in the Sony

brand (to both internal and external constituencies), while re-examining the unique relationship

of the brand in American culture.

Despite involvement in disparate businesses, the company’s desire is to leverage the brand

beyond the products -- the primary touchpoint with consumers, and add to the brand’s value by

re-focusing it to the outside world.

In essence, Sony, the box manufacturer, is being replaced by a new Sony – a customer-centric

entity centered around broadband entertainment, yet driven by the venture spirit of Sony’s

founding days.
Corporate Governance, Risk & Inequality in Japan and the United States

 That includes nearly everyone, because corporate decisions influence everything from the

food you eat to the air you breath. So, what exactly is corporate governance? It comprises

the laws and practices by which managers are held accountable to those who have a

legitimate stake in the corporation. Defining who has a legitimate stake is less

straightforward than it sounds. Shareholders are a key constituency, and in the United

States their interests are represented by the board of directors, who, in turn, supervise

management. But shareholders include speculators who flip a stock in a single day as

well as long-term investors who hold a stock for years.

Share holders value at Sony

Large Japanese corporations balance the interests of shareholders along with those of

employees, banks, and business-group members. Employees are considered part of the

corporate community, along with shareholders, although there is no legal requirement to

do so. Shareholder- value systems are designed to produce high returns for shareholders

and the executives whose pay is linked to stock prices.

Such a system of corporate governance, then, has a direct bearing on pay inequality. A

shareholder-value system also tends to ask ordinary employees to bear more of the risk

associated with business. Japanese companies--and also some privately-owned U.S.

companies-- carry more of the burden of protecting employee jobs during downturns.

Because shareholder-value companies view workers more like commodities than assets,

they have higher employee turnover, invest less in employee training, and are less willing

to make long-term financial commitments to employees,

 Japanese stakeholder systems are actually rather recent innovations. They emerged in the

immediate postwar years, when enthusiasm for democracy was high and the status of

business leaders and owners -- who cooperated with wartime governments-- was low.

Both Germany and Japan forged social compacts that included a stakeholder role for

labor in corporate governance. Today those contracts are being renegotiated, partly due to

changing domestic politics and partly to globalization, which makes corporations more

sensitive to fickle foreign investors. Yet change is slow in Europe and Japan because

stakeholders in those countries--as well as many business executives-- remain skeptical

that the shareholder-value model makes sense for them.

 Japanese corporate governance in the postwar decades was a form of stakeholder

capitalism, in which corporate boards balanced the interests of employees, businessgroup

members, banks, customers, suppliers, and shareholders. At Japanese companies,

according to sociologist Ronald Dore, “nobody gives a great deal of thought to owners.

Firms are not seen as anybody’s ‘property’. The y are organizations – bureaucracies

much like public bureaucracies that people join for careers, become members of. They

are more like communities9..

 Although there was an active market for shares in Japan, most shares were not traded.

Instead a system of cross-shareholding existed, in which a company and its suppliers,

banks, and customers held stock in each other’s company. Cross-holding made it nearly

impossible for hostile acquisitions to occur. Also, it gave contracting parties a stake--and

a nose--in each other’s business. Moreover, because reciprocal shares were rarely traded,

their owners looked at long-term rather than short-term performance. So-called patient
 capital permitted companies to pursue projects with long payouts, such as building

market share and operating a career employment system. This is not to say that Japanese

companies were indifferent to shareholders. When a company did poorly--with sagging

stock and reduced cash flows--its main bank might initiate a financial work-out.

Company presidents would be sacked.

 Japanese corporations conceded that giving more importance to shareholders was

necessary, especially since many if not most of Japan’s actively traded shares were now

held by foreigners, particularly Americans. (Troubled banks have been unwinding their

cross-holdings, making more shares available for foreign purchase). Large companies put

an outsider or two on their boards and beefed up their investor relations departments.

They also adopted more transparent accounting procedures. But in my interviews with

senior executives in Japan, I found them doubtful that stakeholder governance was

responsible for Japan’s problems or that a shift to American practices would cure what

ailed the Japanese economy. Instead executives placed the blame on other--more

“macro”--factors such as botched fiscal policies, the Bank of Japan’s monetary

stringency, and a tortoise- like resolution of Japan’s banking mess.

 Instead, companies like Canon and Toyota continue to staff corporate boards largely with

insiders, to pay executives modestly, to consult enterprise unions, and to avoid layoffs of

“lifetime” employees. Adjustments occur instead through early retirement or reduced

wage growth and hiring (except of part-timers). Unlike the United States, large

corporations continue to shoulder more risk for employees and share resources more

equitably with them than American companies.

 The Japanese also don’t want the levels of inequality that have surfaced in the United

States in the last twenty years. Japan remains an almost-homogeneous society, where the

upper middle-class and the working-class still live and commute in relatively close

proximity. True, there has been some growth of income inequality since the 1980s, and

with it phenomena like middle-class flight to private schools. But Japan remains

egalitarian as compared to the United States. Ranked by income inequality, its standing

has changed little among the OECD countries since the 1980s, putting it between the

welfare states of Northern Europe and the Anglo-Saxon nations, such as the United

States, the United Kingdom, and Canada.


Sony - one of the pre-eminent global consumer electronics brand which has enjoyed unparallel brand equity and
loyalty is surprisingly a classic case study for what a brand should not do to erode its own brand standing in the
market place. Over the last couple of years, Sony has been gradually but surely slipping from its ivory tower and
failing to keep up with many of its followers turned competitors such as Samsung, LG and the others. What did
Sony do wrong? How could such an iconic brand get into trouble?
 One of the fundamental tenets of a brand's success is its ability to do two contradicting things very well- maintain
consistency (in brand image, brand personality, key performance indicators such as quality, features, price points
and such) and constantly change in order to stay in tune with the changing times. Doing these two things
simultaneously is a big challenge for any brand - even for a brand such as Sony. This task becomes more difficult
for an established brand such as Sony because of the brand's well established brand systems that often leads to
corporate arrogance and complacency.
 A quick look at Sony's brand path over the last couple of years clarifies this point very well. A major factor
contributing to Sony's global dominance for so many years was the brand's leadership position in innovation,
cutting edge designs (in that age), and its ability to anticipate hidden consumer needs and cater to them. This
philosophy manifested in the form of Walkman, VCR, PlayStations to name a few. In retrospect, this sustained
success may have come at a cost - a cost that is costing too much for the brand now.
 There are many reasons for Sony's fall from the top. As other young competitors such as Samsung learned the
mistakes of excessive and unrelated diversification and channeled their resources around one or two dominant
businesses, Sony still seems to have stuck up in multiple businesses: consumer electronics, music label, online
music store, semiconductors, a motion picture company and financial units to name the dominant few.
 This diversification not only drains the brand's resources to a great extent but also diverts the brand focus from the
core of the brand. Additionally, Sony had years of complacency and lack of focus has opened the market in many
sectors to younger, much agile players such as Samsung, LG, Apple, Nokia and others that are attacking Sony on
multiple fronts. This combined blow from other brands that have become market leaders in businesses that Sony
was once a leader is turning out to be very lethal.
 What should Sony do to regain its lost brand supremacy? It seems ironic that for a solution Sony may want to look
at a brand that prides itself on structuring its brand plan based on Sony's - Samsung Electronics. Sony should first
regain its lost focus and the best way to do this is to come out of businesses that do not contribute to the overall
brand standing in the market place. Secondly Sony should revamp its departments that have a direct impact on
creating strong customer perception for the brand - R&D, design, and marketing. In other words, Sony needs to
elevate the marketing function to the boardroom and enable marketing to take a lead of the business and the
strategy. It cannot be left to a functional department.
 Samsung is surging ahead based on its world-class sleek designs, customer focused innovation and strong brand
campaigns. Sony can do a lot good to take a look around and then decide to refocus on its brand all over again. It
starts with its leadership and the willingness and ability to take some substantial actions at the boardroom level
Conclusion

There persists the belief that a firm’s only responsibility to society is to maximize profits without

breaking the law, hence the role of corporate governance is to provide appropriate corporate

control. Research suggests that there is a growing perception that corporations are social

entities overall, answerable to social constituencies and that the role of corporate governance is

to understand and adequately address the interest of such social and political constituents. A

review of research studies in the area of corporate governance’s contribution to corporate

performance reveals that there is no conclusive evidence of contribution. Moreover, it

illuminates the need for a boarder criteria of performance and for the adoption of a political

model of corporate governance in order to facilitate a corporation’s external accountabilities.

 1. Sanford M. Jacoby is professor of management, public policy, and history at UCLA

and author of The Embedded Corporation: Corporate Governance and Employment

Relations in Japan and the United States (Princeton University Press).

 2. Louis Lavelle, “Executive Pay,” Business Week Online, April 16, 2001.

 3. Adolf A. Berle and Gardiner C. Means, The Modern Corporation and Private Property

(New York: Commerce Clearing House, 1932).

 4. Francis X. Sutton, Seymour E. Harris, Carl Kaysen, and James Tobin, The American

Business Creed (Cambridge: Harvard University Press, 1956).

 5. Margaret M. Blair, Ownership and Control: Rethinking Corporate Governance for the

Twenty-First Century (Washington, D.C.: Brookings Institution, 1995).

 6. Gordon Donaldson, Corporate Restructuring: Managing the Change Process from

Within (Boston: Harvard Business School Press, 1994).

  7. David Henry and Frederick F. Jespersen, “Mergers: Why Most Big Deals Don’t Pay

Off,” Business Week (October 14, 2002); William J. Baumol, Alan S. Blinder, and

Edward N. Wolff, Downsizing in America: Reality, Causes, and Consequences (New

York: Russell Sage Foundation, 2003).

 8. Emmanuel Saez, “Income and Wealth Concentration in a Historical and International

Perspective,” working paper, U.C. Berkeley Department of Economics, 2004.

 9. Ronald Dore, Stock Market Capitalism: Welfare Capitalism; Japan and Germany

versus the Anglo-Saxons (Oxford: Oxford University Press, 2000).

Cittioon

Prahalad, C.K., Corporate Governance or Corporate Value Added?: Rethinking the Primacy of

Shareholder Value. Journal of Applied Corporate Finance, Vol. 6, No. 4, Winter 1994.

Available at SSRN: http://ssrn.com/abstract=544042