The Hollywood studio has been operating on autopilot.

Photographer: Patrick T. Fallon/Bloomberg

Sony's Got Bigger Problems Than North Korea

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"Why pick on Sony? They haven't had a hit since the Walkman." In a three-minute skit on "Saturday Night Live" over the weekend, comedian Mike Myers nailed one of the less-discussed problems to be exposed by North Korea's hack of Sony Pictures: the apparent cluelessness of top Sony brass in Tokyo.

Like the Japanese media, Sony's corporate headquarters thus far seems to view the hacking drama as mostly an American problem. When local newspapers have covered the story, they've focused on Hollywood's poor taste in lampooning North Korean leader Kim Jong Un. Sony executives, including CEO Kazuo Hirai, have barely commented.

In fact, the attack has exposed a disturbing lack of cyber-preparedness on Sony's part. Hirai early on recognized the sensitivity of "The Interview" -- the Seth Rogen comedy that appears to have provoked the Pyongyang regime -- even going so far as to ask for revisions to the climactic assassination scene. But since the hacking, public coordination between Los Angeles and Tokyo has been poor if not nonexistent. The controversial decision to pull the movie from theaters before release was reportedly made by the studio alone.

This internal dysfunction points to a much wider problem at Sony. No corporate name better embodies Japan's rise from the devastation of World War II. Japanese view Sony founders Masaru Ibuka and Akio Morita with the same awe and affection Americans do Henry Ford or Steve Jobs. The Walkman, about which Myers's alter ego Dr. Evil joked on Saturday, changed the world and fueled a cottage industry of books heralding the coming domination of Japan Inc.

But as the company expanded -- in part with the high-profile purchase of Columbia Pictures Entertainment in 1989 -- it lost focus. Over the last two decades, executives have repeatedly put off painful restructuring and refused to shed underperforming assets. Sony's operations now sprawl from film and music studios to videogame consoles to life insurance. Tokyo's hands-off attitude toward its Hollywood studio may reflect a laudable concern for artistic freedom. It's also an acknowledgment that the company has grown too big and too disparate for any meaningful oversight from the top.

Until he sold off his stake in October, activist investor Daniel Loeb had argued vehemently that Sony's entertainment division was a boondoggle, a luxury the company couldn't afford. Largely left to its own devices, the entertainment division was turning out profits and hits like "Spider-Man," but all-too-many duds as well. (Ironically, early word on "The Interview" suggests it, too, would have tanked at the box office.)

Rather than heeding Loeb's advice, Hirai left the studio on autopilot while he concentrated on trying to revive the moribund electronics division. Sony executives' attitude toward Loeb can be judged by some of the thousands of e-mails leaked by the hackers. "Champagne for all,” wrote Sony Pictures Chief Financial Officer David Hendler after Loeb announced he was selling his Sony shares. Tom Rothman, chairman of Sony’s TriStar Productions venture, gloated: "Sit by the side of the river long enough, and the bodies of your enemies will float by."

Japan's famously tame media helps make this kind of corporate complacency possible. Reporters have traditionally gone easy on the iconic Sony, as they have against lesser-known Japanese corporations like Takata, which is enmeshed in a scandal over the safety of its airbags. In the U.S., the Sony hack has highlighted the scale of the threat posed by North Korea, which has been eagerly ramping up its cyberwar capabilities. Yet there's been very little discussion in the Japanese media about how exposed Japanese companies are to further attacks, or what the government should be doing to help them bolster their cyber-defenses. It's not even clear whose bureaucratic bailiwick this should fall under.

The irony is that with "The Interview," Sony got into trouble for doing something it should be attempting more often: taking risks. Where executives really need to be more daring, though, is in rethinking their own company.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Willie Pesek at wpesek@bloomberg.net

To contact the editor on this story:
Nisid Hajari at nhajari@bloomberg.net