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Interview included in Sony's 2004 CSR report

Dialogue:
John Elkington & Teruo Masaki

Sony recognizes that its business decisions need to give due consideration to the interests of its various stakeholders. As part of a dialogue with its stakeholders, on June 2004, Sony invited one of the leading authorities in the CSR field, Mr. John Elkington, Chairman of SustainAbility, to talk with Mr. Teruo Masaki, Group General Counsel of Sony Corporation.

John Elkington (JE): I was struck in reading your 2003 CSR Report with the range of governance changes Sony has introduced - and with the way in which corporate social responsibility seems to have been integrated.

Teruo Masaki (TM): Historically, this company has continuously pursued improvement in our corporate governance*1. Structurally, we have done quite a few things in this area before the major changes adopted last June. We created committees under the old law in Japan, and had outside directors serving on our board from way back when.

JE: So the committee structure is now much more powerful?

TM: Right. We did this before the law changed in Japan to require this approach. In fact, the law that was adopted here in 2003 pretty much mirrored what we had already put in place at Sony.

JE: Regarding risk management, I recall that you gave a very interesting speech at a recent BSR*2 conference in the U.S. You talked about a cadmium problem.

TM: Yes, this was an incident which came to light because the Dutch authorities inspected our warehouse and discovered traces of cadmium in some of our products. It's a long story, but as far as the authorities were concerned, it was an issue with just one game console called PS one. And the problem affected not the console itself but some accessories that were included in the package. We looked into the background of this and discovered that the problem was systemic. It could not be isolated, because of the way it occurred. We discovered that the contamination occurred at the third party raw material manufacturing stage - and it came up the 'food chain', affecting many of our components.

JE: What was the reaction inside Sony to that? Some people might have argued, well it's only a small amount of cadmium.

TM: Well, some people got upset, obviously, but at the management level we immediately agreed that this was what we call a 'Level 1'*3 crisis. This is the highest level crisis that we can imagine. In such cases, we set up a crisis management system. The Group CEO creates a Crisis Management Office, under which we form a Crisis Management Committee consisting of key heads of the divisions involved in the particular crisis, and for the cadmium issue, I chair that committee.

JE: Given that so many issues can now impact corporate reputations and brands, how does your new governance structure and risk management approach fit in?

TM: It's integral. We have expanded and renamed our environmental group, which is now Corporate Social & Environmental Affairs. Corporate Risk Management Group and Corporate Social & Environmental Affairs together with Corporate Legal Group and Personal Information Management Group make up the Compliance Office. But what we do within this office is not just compliance in the narrow sense, because compliance assumes there are formal external rules to comply with. Where there are, fine, we comply. But even if there are no specific rules in particular areas the Sony Group Code of Conduct*4, which we adopted in May 2003, may well cover such areas and require compliance with our own rule. Aside from standards regarding legal and regulatory compliance, this code sets out Sony's basic standards regarding business integrity, respect for human rights, disclosure of information, intellectual property and environmental conservation.

JE: Looking back over your history, Sony has continuously reinvented itself over the decades. You've gone from rice cookers to digital cameras, computers and entertainment. If you think 10 years into the future, how will Sony's fundamental business model be different? For example, we might hope that by 2015 CSR and sustainable development priorities would be integrated into the company's very DNA.

TM: Although Sony has been such an evolving company, first of all, do we know what Sony will look like 10 years from now? We know we will not look anything like what we are today, but I'm not sure we can say exactly what the business model will look like, either. We do have numbers of factors we think will be a key to forming what we will become. My view is that regardless of what our new business model or the economic environment as a whole might be 10 years from now, the substance of our corporate social responsibility approach will not change. We will be essentially addressing the same challenges. And we will be seeking to do business in a way that responds in a timely and effective way.

JE: OK, but can you imagine a future when Sony does not need a CSR department or anything like it? How long before all this is done automatically? And, given the sheer diversity of business areas in which Sony operates, from electronics through to entertainment and financial services, it seems that the challenges all Sony group companies face of getting CSR issues accepted by their boards and then pushed out to the operating units are going to be even tougher here.

TM: These are real challenges, clearly, but I think this kind of office will continue to be necessary, indeed vital. I think someone has to show a flag everyone else can see and follow. Unless you have some focal point for large organizations things can go adrift. But, at the same time, programs that were developed centrally roll out to the operating units. Our Green Partners Program*5, for example, is now in the hands of the procurement people.

JE: One of the biggest environmental and financial challenges the consumer electronics sector faces is the growing interest in 'take-back' systems. You have some of them in Japan, and in Europe we now have the Directive on Waste Electrical and Electronic Equipment, which comes into force in 2005. Surely such requirements are going to mutate your business model?

TM: Yes, but I do not view this issue as something that we need to address 10 years from now. It's hitting us today. It obviously takes time to get such complex systems established in different markets. But we see the key challenge as ensuring that take-back and recycling is done as eco-efficiently and cost effectively as possible.

JE: Sony appeared in the 'Top 50' when we did our last benchmark survey for the United Nations Environment Programme (UNEP), the 2002 Global Reporters survey. We are just re-running the survey and I'm looking forward to seeing how the trends in best practice have evolved. How do you see the reporting challenge?

TM: Seriously, I think it's important that when you issue these reports, they are not just window-dressing, not just projecting an image. My emphasis has always been that we must have substance, we must have real actions in place. If we have programs, and understand all the areas we must work on, then I would not hesitate to disclose the information about where we are today, whether it's nice or not.

JE: I was quite taken with the 2003 Sony CSR Report - particularly the way you linked such issues to the corporate governance and risk management agendas. Growing numbers of companies, yours among them, are now developing sets of financial, social and environmental accounts, though the social area is one where Japanese companies seem to be having some difficulties in disclosing the information. The next challenge is to take some of this information and make it meaningful to specific groups of stakeholders. At least at this level, it's a communication task.

TM: I agree, communication is key. But my emphasis is always on substance and implementation. Without the results and prospects that we will arrive at some meaningful level of progress, the danger is that what emerges is little more than propaganda.