They're probably having trouble with the town.
I really don't think their management is idiotic. More that everything that's ever gone wrong for Nintendo is coming to a head. Their decisions with the N64, a culture of conservation of resources and conservatism. The game market changing around them. Heck the burden of having a reputation as being so successful in terms of banking money - I wonder if part of their problem is that the shareholders (who don't give a shit what they make or how they do it) expect Nintendo to always make a great return on thrifty expenditures.
They never operated like, say, Sony. So suddenly behaving the way a gaming public demands (sell premium technology at a big loss just to get it in people's hands, etc), would seem like reckless insanity and unjustifiable to people Iwata has to explain himself to. Especially when companies like Sony themselves are not doing so great with that strategy.
Iwata: "We have decided it is prudent to invest in inroads to the 'core' audience that once associated Nintendo with leading support for software publishers. To this end, our new console employs very advanced technology required to achieve parity in multiplatform software support from contemporary publishers."
Shareholders: "We have recently sold our stock in Sony because such behavior alarms us! Such companies are performing poorly. How can you justify this wasteful product that will post great losses on every unit sold? I have seen many people recently on streets using mobile phones to manipulate computer software. Why are you not developing mobile phone computer software?"
Iwata: "..." LASERS WARM UP
Miyamoto: "Now you done fucked up."