September 13, 2016 9:00 pm JST

Sharp changing rapidly under new Foxconn management

JUN IIYAMA, Nikkei staff writer

Toshiaki Takayama, second from left, stays close to Foxconn Chairman Terry Gou at a meeting with Sharp in February.

OSAKA -- Hon Hai Precision Industry of Taiwan has already begun to restructure Sharp's personnel management system and organization in earnest since it acquired the struggling Japanese electronics maker a month ago Monday.

Sharp, the first leading Japanese electronics company acquired by a foreign company, is faced with drastic changes brought by Hon Hai, also known as Foxconn, to turn around the Osaka-based company.

At Sharp's head office, relocated to Sakai from Nishi-tanabe as a result of the acquisition, company President and CEO Tai Jeng-wu, the No. 2 man at Foxconn, claps his hands in worship in front of a Shinto shrine on its premises before the meeting that starts at 8 a.m. every morning. Tai, 65, who was dispatched to lead the new subsidiary's restructuring, began the practice in Taiwan and continues it in Japan.

Tai, who took the helm at Sharp on Aug. 13, studied accounting and Japanese language at the Tatung Institute of Technology established by major Taiwanese electrical and electronic equipment maker Tatung group. He joined Tatung after graduating from the institute and was dispatched to Japan as a resident official, among other assignments.

In 1986, Tai joined Foxconn and made a name for himself by succeeding in arranging a deal with Sony. He has since become Foxconn Chairman Terry Gou's right-hand man. Gou is often in Taiwan and China, and Tai is in touch with him almost every day.

Gou has a cheerful demeanor and speaks loudly. Tai is generally considered an aide to Gou, but he has already begun to develop a management stance of his own.

Upending the system

At a management strategy meeting in late August, Sharp officials were surprised at Tai's familiarity with the company's operations, because he said that he would end the existing "rotation system."

This is a personnel management practice by which young employees are assigned to three separate sections, thereby producing workers with knowledge outside their field of specialty, rather than being expert exclusively in a specific area.

The system was promoted by Sharp's fourth president, Katsuhiko Machida, who was credited with a steep increase in the company's earnings in the first half of the 2000s due to his avowed policy of replacing all cathode-ray tube TVs with liquid crystal display panels. Although the rotation system was identical to Sharp's, Tai readily ended it because Foxconn usually requires workers to specialize in specific fields upon joining the company and continue improving their specialty.

An organizational reform announced on Aug. 26, exactly two weeks after Foxconn's acquisition of Sharp, included the creation of the President's Office to support Tai.

"The President's Office is like the prime minister's office, and the head of it is like the chief cabinet secretary," a Sharp official said, because the new office is not only responsible for bundling secretaries for executives and overseeing management plans but is also tasked with putting Sharp under Foxconn's control.

The office is staffed with 200 members and includes officials in charge of structural reforms, personnel management, legal affairs, information technology, public relations and external affairs.

The reform has also eliminated the Tokyo branch as organizational unit and has given the President's Office authority to negotiate with the Ministry of Economy, Trade and Industry and other government organs.

In short, the office has fully acquired authority over personnel issues. Reference materials presented to Sharp workers by Tai in late August stated that promotions will be officially issued in writing following approval by the President's Office and personnel shuffling between business units and within the group will be officially issued in writing following approval by the office.

Yoshihiro Hashimoto from Bank of Tokyo-Mitsubishi UFJ, one of Sharp's main creditor banks, took the post of "chief cabinet secretary" on Aug. 27. Hashimoto reportedly decided on his own to stay with Sharp without returning to the bank. But because Hashimoto joined Sharp from outside the company, doubts have already cropped up about the difficult task of serving as a bridge between Tai and the Sharp workers.

Along with the President's Office, the Administration Sector is the other core organ, with finance, accounting, business administration, corporate procurement, global logistics, general affairs and other divisions under its supervision.

The sector is headed by Representative Director and Executive Vice President Katsuaki Nomura. He won Gou's trust when he served as chairman of Sakai Display Products, a joint venture between Sharp and Foxconn.

Nomura and Hashimoto thus control Sharp headquarters under Tai.

The personnel reshuffle on Aug. 27 sparked attention on Toshiaki Takayama, who was named senior executive vice president of an in-house company, Display Device. The 40-year-old Takayama, who is distantly related to Tai, was appointed the member of the board of Sharp by Foxconn. He joined the Taiwanese company's Japan unit and until recently worked as SDP's executive vice president.

Takayama is a close aide to Gou and Tai, playing such roles as assistant and interpreter for Gou whenever he visited Japan for talks to acquire Sharp.

Sharp's LCD technology was reportedly the biggest reason for Foxconn's decision to acquire the Japanese company. Display Device is the only in-house company that survived the latest organizational reform, which has converted non-LCD companies into a number of operational groups. Sharp had consolidated its core operations into five in-house companies as part of its own rehabilitation plant as recently as last October.

In addition, the TV business, which used to belong to the same in-house company as white goods and mobile phones, have been transferred to the display company and expanded in scale.

The display company is headed by Taimi Oketani from Sharp, who established close ties with Gou while serving as SDP's president. Although Oketani is not a member of the Sharp board, he is supported by Takayama.

While there is a "sentiment of strangeness" in vertical relations between Oketani and Takayama, their appointments may be taken as a message from Foxconn that it will take the initiative in Sharp's LCD business, said an official of a company that supplies LCD-related devices to the Japanese company.

Sharp officials point out that Foxconn assigned Takayama to his post at the display company for the sake of his future through the accumulation of experiences in Sharp's core LCD business. In fact, people affiliated with Foxconn will lead the LCD business.

Brain drain 

Meanwhile, key people who used to support Sharp have left the company. Among them is Tetsuo Onishi, who was in charge of financial affairs as executive vice president; he has joined Nidec as executive vice president. Norikazu Hoshi, former senior executive managing officer who headed the LCD business, has taken the post of executive vice president at Sharp's rival, Japan Display.

Kazushi Mukai, president of Business Solution company, which handled copier machines; Kenichi Kodani who headed the TV division; and Hiroyuki Fukui, head of the management planning division, also quietly quit their jobs at Sharp. One of them said at a farewell party, "It is no longer possible to stay at the company under Foxconn's wing."

With Sharp workers growing jittery at the same time, word is circulating among them that executives have been given key positions because they are favored by Gou or have good relations with Tai. In fact, a senior official is said to have been promoted because he happened to sit next to Gou on a bus when he visited Taiwan and won the chairman's trust.

The treatment of the executives symbolized organizational and personnel management reforms carried out at Foxconn's initiative. While Sharp had 22 executive officers, the number was cut to one, effective Aug. 27, due to the tough management environment. Sharp has retained the one officer because he is needed to supervise solar battery production, said a person familiar with the matter.

Their roles changed little, but the title of executive makes them "look important for some reason," a personnel affairs official said with a bitter smile.

Basically, executives engage in the same tasks after their titles are removed. But the personnel affairs official said their number has been drastically reduced to boost executives morale and will be increased when Sharp is back in the black. This suggests that personnel management to reward good results but punish poor ones has already gotten underway.

Despite its falling sales, Sharp has been promoting strategic moves, such as withdrawing from its unprofitable TV operations in the U.S. and Europe. Recently, it is expanding operations again in line with Foxconn's strategy, and is planning to promote negotiations to buy back the Sharp brand from U.S. and European companies that have purchased its TV and white goods businesses.

The latest restructuring included the establishment of the Global Business section, which includes managing representatives in Americas, China and other regions under its supervision. Heading the section is Toshihiko Fujimoto, who represented Sharp in negotiations for Foxconn's acquisition and served as executive managing officer in charge of cooperation between the two companies.

The overseas operations management section was established after the global marketing group was shut down on April 1, 2013.

In an email that Tai sent to Sharp employees after he assumed his current post, he said the section is aimed at achieving Sharp's prompt return to profitability and making the company into a shining global brand.

"Tai color"

The "Tai color" is not limited to personnel and organizational management. In late August, he also called for consolidation of the industry.

Speaking with media, including The Nikkei, Tai called for an alliance of Japanese companies to compete with Chinese and South Korean companies. Before taking questions from reporters, Tai voluntarily suggested that Sharp would be willing to form an alliance with major LCD panel maker Japan Display and other rivals in the field of organic light-emitting diode panels. As he did so, he held a copied charter of establishment by Innovation Network Corp. of Japan, a public-private partnership for investment, which is the biggest shareholder in Japan Display and competed with Foxconn this spring for the acquisition of Sharp.

Accepting Foxconn's investment, Sharp plans to build a mass-production line for organic EL panels at a cost of 200 billion yen ($1.95 billion). Tai made the remark possibly because he considers that government support should be available to Japanese makers, such as Sharp and Japan Display, as they are lagging in the market for OLED panels behind Chinese and South Korean companies benefiting from backing by their governments.

In fact, the Taiwanese government is undertaking behind-the-scenes studies to map out a framework of cooperation between Japan and Taiwan, including Taiwanese panel makers.

South Korean companies are going ahead in the field of OLED panels for both smartphones and TVs. As the OLED panel business is Sharp's biggest investment since it accepted a capital injection from Foxconn, Tai is widely believed to have made the remark in hopes of causing a stir in deliberations in Japan on the OLED panel business.

On Aug. 22, when Sharp ended its summer holiday, Tai made an inaugural address to employees that included unusually emphatic language. As one of three structural reform principles, Tai stressed the importance of introducing a merit-based personnel management system.

In an entry for thorough implementation of a personnel management system that rewards good results and punishes poor ones, Tai mentioned his intention to properly reward achievers with treatment and promotions. He also mentioned the adoption of compensation by job classification for rank-and-file workers and of a flexible system of demoting managers who avoid challenges and fail to generate enough results.

Tai suggested 7,000 job cuts worldwide before assuming his current post, but backpedaled on the figure thereafter.

Some analysts note that attrition will increase under Foxconn's stringent merit-based personnel management system, even without a company-wide job-reduction target.

Without pressure, reform at Sharp will fail, Tai said on Aug. 22. "Anxiety is common and I am anxious, too," he continued. "Everybody is anxious because of red ink. We cannot grow without anxiety."

Asia300

Hon Hai Precision Industry Co., Ltd.

Taiwan

Market(Ticker): TAI(2317)
Sector:
Industry:
Electronic Technology
Computer Peripherals
Market cap(USD): 66,351.99M
Shares: 17,328.73M

Sharp Corp.

Japan

Market(Ticker): TKS(6753)
Sector:
Industry:
Consumer Durables
Electronics/Appliances
Market cap(USD): 16,966.75M
Shares: 4,994.52M

Sony Corp.

Japan

Market(Ticker): TKS(6758)
Sector:
Industry:
Consumer Durables
Electronics/Appliances
Market cap(USD): 49,704.06M
Shares: 1,264.36M

NIDEC Corp.

Japan

Market(Ticker): TKS(6594)
Sector:
Industry:
Producer Manufacturing
Electrical Products
Market cap(USD): 34,067.21M
Shares: 298.14M

Japan Display, Inc.

Japan

Market(Ticker): TKS(6740)
Sector:
Industry:
Electronic Technology
Electronic Components
Market cap(USD): 1,130.77M
Shares: 601.41M

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