Company Town : Schulhof Has Nerves on Edge at Sony

With summer symbolically fading and workplaces returning to normal, at least one executive will have his hands full this week. Sony Software President Michael P. Schulhof has to talk his company down from its mass anxiety attack.

Behind the turmoil is Schulhof’s handling of a decision to bring Jeffrey Sagansky in as second in command. Internal sources say the Sony chief kept most of his top lieutenants in the dark about the plan until it was revealed in press reports last week. On top of that, they say he still hasn’t tendered a convincing explanation of Sagansky’s responsibilities.

At Sony Music, the company’s sole cash machine, President Thomas D. Mottola and his staff are said to be livid over the “destabilizing” effect of the Sagansky news and the way it was delivered. Conversations between Mottola and Schulhof are conservatively described as “strained.”

“The way this thing went down is an indication of weak leadership in the highest realms of Sony,” said one angry insider. “Why would any executive worth his salt do anything to alienate the biggest breadwinners in his company? It defies logic.”

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Word of Sagansky’s hiring has also rattled executives at Sony Pictures, who fear he’s being brought in to lead a housecleaning of the troubled company headed by Peter Guber. Executive recruiters, meanwhile, are using the unsettled state of the company as an opportunity to circle in on Olaf Olafsson, the respected head of Sony Electronic Publishing.

Schulhof could have soothed a lot of nerves last week by rapidly concluding the Sagansky deal and delineating the new lines of authority in a public statement. Instead, he left it to aides to offer confusing and sometimes contradictory background accounts of the new corporate order--one in which Sagansky, easily one of the most sought-after executives in the entertainment industry when he left CBS, has been relegated to a vague “strategic” post.

As they prepared for the long Labor Day weekend, even some of Schulhof’s longtime backers threw their hands in the air over the way he’s managed Sagansky, who could have been sold early on as a savvy executive move for the company. “What can I tell you?” said one. “It’s all very confusing.”

And all too familiar. While no media tycoon is totally immune from the sometimes scorching coverage of their industry, Schulhof, 51, suffers more self-inflicted burns than most.

A former physicist who’s been called brilliant by a lot of people who should know, Schulhof nonetheless has, with his actions, confounded observers often since Japan’s Sony Corp. snapped up CBS Records and Columbia Pictures Entertainment in the late 1980s.

As head of Sony’s American operations, Schulhof has responsibility for making its roughly $10-billion entertainment investment pay off. But his track record is mixed at best. Sony Music under Mottola is the big success, with cash-cow acts such as Pearl Jam and operating revenue of $4.5 billion for the fiscal year ended March 31. On the other end of the spectrum is Sony Pictures, which is considered a major financial drain on the company after a long box office drought. The jury’s still out on the new-media division, Sony Electronic Publishing.

Says one well-placed critic: “He knows how to buy, but he doesn’t know how to operate.”

A typical Schulhof misstep came earlier this year when he widely touted a plan to sell a 25% stake in Sony Pictures to an outside investor. When no one rushed, or even crept, forward to take him up on the deal, Schulhof and the company were exposed to unnecessary embarrassment.

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Schulhof also has a history of inciting executives at Sony Music. In one move that remains a sore point, according to knowledgeable sources, Schulhof denied Mottola funding for strategic acquisitions at the very time he was pouring millions of dollars into a cosmetic makeover of the Sony Pictures lot.

Then there’s the title issue. After relegating Mottola to a sort of executive limbo early in his tenure, Schulhof last year named him chief operating officer of Sony Music. Many colleagues took the appointment as a sign of Mottola’s coronation. But one week later, Schulhof issued a memo clarifying that he and not Mottola was actually in charge of domestic music.

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Two months after that, in November, Schulhof tried to silence rumblings about management instability at Sony Pictures by dramatically releasing word that his core group of senior executives had renewed their contracts. By spring, Sony found itself sheepishly explaining why Jonathan Dolgen, perhaps the most respected of the group, had defected to Viacom Inc.

Now comes Sagansky. While company sources say he will largely focus on stirring up interest in the 25% Sony Pictures sale, or possibly a public offering in the entire entertainment operation, Hollywood insiders believe all roads inevitably lead back to a problem-solving role at Sony Pictures.

Schulhof, through his operatives, was insisting as of last week that Sagansky will have no operating authority over the three divisions. But as history has shown, Schulhof has a tendency to change his mind.

Says one observer: “It’s almost impossible to imagine what Schulhof was thinking. Was he attempting to assert his authority or trying to fool the Japanese? Was he trying to sneak up on Guber? Who knows? Whatever possessed him to go about this decision in the manner that he did, it was a big mistake.”