I.B. BAD ON THE LEADERSHIP CRISIS WITHIN SONY BMG MUSIC
Sony Corp. chieftain Sir Howard Stringer rushed to the defense of the executive he’d hired to run Sony Music in 2002, insisting that “Andy Lack has executed this very complicated merger between Sony Music and BMG Music brilliantly. The partners are in this together for the long term. And while quarterly performance and marketshare are important, overall performance, together with artist relationships and the development of new and creative talent, are paramount. Andy is exceptionally well-suited to manage the company in this challenging and ever-changing environment."
Some perceive Stringer’s words as a vote of confidence, but others see the statement as damning Lack with faint praise.
No music industry story has sent more dramatic shockwaves in recent memory, and other news sources jumped on it as well. The story was advanced significantly Tuesday morning by Tim Arango in the N.Y. Post, who caught wind of a “multimillion-dollar record deal Lack gave rocker Bruce Springsteen earlier this year over the objection of Bertelsmann executives, according to people familiar with the matter… These people said Lack did the deal on his own—and that Bertelsmann executives opposed the amount of money given to Springsteen, which is said to have been more than $50 million.”
Additionally, Arango reported that Bertie and BMG believe the departure of COO Michael Smellie, the ranking BMG executive in the combined power structure, would leave Bertelsmann without its "eyes and ears." Wrote Arango: “While Smellie resigned by choice, sources said Lack effectively diminished his role, giving him no real power within the company. ‘I would say he was allowed to atrophy,’ said one source. This person said Smellie likely would have stayed ‘had his role been more substantial.’… Ex-BMG boss Rolf Schmidt-Holtz is non-executive chairman of Sony BMG, and sources said he felt any influence he had over the company was diminished with Smellie's exit.”
Sources also told Arango that Sony can keep Lack in his position until the end of next year, after which it would need Bertelsmann's approval. According to the terms of the merger agreement, Bertie cannot unilaterally fire Lack.
In the L.A. Times, Charles Duhigg reported that Bertelsmann bigwigs told Stringer more than a month ago that they opposed renewing Lack's contract. “Supporters of Lack claim that Bertelsmann's withdrawal of support is a tactic intended to force Lack to appoint a BMG-affiliated executive to replace Smellie,” wrote Duhigg, quoting a source close to Lack as telling him, "This is all going to be amicably resolved very, very soon. No one is going anywhere." On the other hand, the story continued, “executives at Bertelsmann and BMG Music said Bertelsmann's top brass had lost confidence in Lack's leadership and might ask for his ouster regardless of who was hired as chief operating officer… Executives familiar with Sony BMG said that when Lack returned from a September vacation he focused on renewing his contract but ran into complications when Bertelsmann executives heard complaints from BMG Music employees… The cultures of Sony and BMG have clashed, insiders say. Some BMG employees believe that Lack favors Sony's divisions, and some executives said they were dismayed by Lack's unfamiliarity with the music industry.”
Some inside SBMG, seeking to defuse the controversy, speculated that Bertelsmann was sufficiently concerned by Lack’s failure to immediately put another BMG executive in the COO position that the story was leaked to
If Lack’s ouster does come to pass, several factors will probably have contributed to it:
(1) Insiders say Smellie submitted his resignation in July because he didn't want to continue working under Lack, feeling he wasn’t being treated well or getting the respect he deserved, as Arango reported. Additionally, Lack wasn't focusing on issues that Smellie felt should be top priority. Those same insiders believe Smellie will stay on if Lack is ousted.
(2) The Spitzer settlement has Sony BMG at a competitive disadvantage. No other company has yet been hamstrung by the new guidelines Wonderers wondering why Lack didn’t confer with other label heads on an industry-wide strategy. Has he simply become an island unto himself?
(3) His alleged mishandling of negotiations with key executives on both sides of the fence.
(4) Lack is said to be negative about the music industry, believing it to be in a freefall, as well as being turned off by the cult of personality that is so much the fabric of the business. He would rather be at the Emmys or Oscars than the Grammys. Insiders have long believed he was using a Sony Music turnaround as a career steppingstone, but that attempted turnaround has yet to occur on any significant scale.
(5) Lack has not managed well up or down the Sony hierarchy, according to some within the company. Sony Music and Sony corporate gunslingers are said to not like his caustic, sometimes arrogant management style. He uses more vinegar than honey and has very big ego, they say.
(6) Another story making the rounds is that when Stringer got the big bump, Lack expected to get all Sony film and TV assets in addition to music and was stunned when Stringer failed to come through. Was this a sign that he’d worn out his welcome with Sir Howard? SBMG insiders saying that Lack will be gone before the new year, and the next CEO will probably be former Schmidt-Holtz.
