Olympus in corporate turmoil as sacked president and CEO alleges financial incompetence

[DPNow]

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Olympus Corp., the parent company of Olympus Imaging, the side of the company that makes cameras, is locked in a serious financial crises after allegations by British president and CEO, Michael Woodford, that the company has indulged in massively wasteful and unexplained financial practices.

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[Ian]

Re: Olympus in corporate turmoil as sacked president and CEO alleges financial incompetence

In an update to this story, Olympus Japan has issued a statement that attempts to clarify things from their point of view.

Olympus says that Michael Woodford's sacking from the his positions as Olympus Corp. President and CEO was not in response to his request for the Chairman and Vice President to resign, but because of other ongoing differences concerning his management style.

After originally saying that the value of fees paid with regard to acquisition advice alleged by Woodford was incorrect, Olympus now agrees with the near $680M figure and has attempted to explain what the payments were for.

Olympus also dismisses the PricewaterhouseCoopers (PwC) audit report that Woodford highlights as the basis for his allegation because the report was commissioned by Woodford himself and not by the company.

Olympus also repeats its point that it is considering legal action against Woodford for publicising confidential company information.

It remains to be seen whether or not the Olympus statement will help to halt the slide in Olympus' share price or Woodford's progress in seeking to expose alleged malpractices within Olympus over the last few years. Observers note that just two weeks ago that Michael Woodford's work as company President over the last six months had earned glowing praise and justified his additional promotion to CEO at the beginning of this month. The hastily convened board meeting that saw Woodford stripped of his responsibilities as President and CEO happened almost immediately after Woodford challenged the Chairman and Vice President to resign. Explanations to clarify the value to Olympus of the mysterious payments are not particularly convincing, at least so far.

Meanwhile, Woodford suggests that the entire Olympus board should now go and that he would be more than willing to return to lead a new board that will revitalise the company.

[Ian]

Re: Olympus in corporate turmoil as sacked president and CEO alleges financial incompetence

Where is Yoshi when we need him?

Ian

[yoshi]

Re: Olympus in corporate turmoil as sacked president and CEO alleges financial incompetence

Where is Yoshi when we need him?

Ian

Hi Ian, well I'm on a trip.
yoshi

[Ian]

Re: Olympus in corporate turmoil as sacked president and CEO alleges financial incompetence

Hi Ian, well I'm on a trip.
yoshi

Sounds fun - where are you?

Here in the West we are quite stunned at what is going on in Olympus

Ian

[Ian]

Re: Olympus in corporate turmoil as sacked president and CEO alleges financial incompetence

Update, Olympus Corp. Chairman, Tsuyoshi Kikukawa, who both appointed Michael Woodford to the positions of President and later CEO of Olympus and then sacked him after Woodford turned whistleblower, has today resigned, although he will continue as a non-executive director.

Ian

[Ian]

Re: Olympus in corporate turmoil as sacked president and CEO alleges financial incompetence

Update: In an interview with the Financial Times, Japanese Prime Minister, Yoshihiko Noda, has called for clarity and action by members of an independent panel called in by Olympus to investigate the growing scandal of huge and largely unexplained payments by the company linked to company acquisitions. Noda is concerned that the Olympus scandal will be seen as symptomatic of Japanese corporate governence rather than an isolated case, which he firmly believes it is.

Ian

[Ian]

Re: Olympus in corporate turmoil as sacked president and CEO alleges financial incompetence

Executive Vice President Mori has been fired. He was Kikukawa's right hand man. The newly appointed President and CEO replacement for Kikukawa, Shuichi Takayama (until recently the boss of the camera division) says that a history of practices of hiding losses in financial investments has been uncovered and that is why Mori was fired. Takayama says he was completely unaware of what had been going on. I'm not sure how this links to the four acquisitions and associated advisory fees that Michael Woodford has highlighted, but the Japanese authorities seem to be very concerned about the latest news. Many people in Olympus, past and present, could now be liable to criminal proceedings.

I've said this elsewhere, but let's assume that a rot within the company is being uncovered and hopefully excised. For me this is very positive because the underlying core businesses look to be sound and could benefit positively from what is going on in the long run.

Ian

[yoshi]

Re: Olympus in corporate turmoil as sacked president and CEO alleges financial incompetence

Who wants Olympus?
So far, according to a news (is this plural?), Sony, Fujifilm, Panasonic as well as Siemens seem to be interested in investing in Oly.
Fujifilm, who is already in endoscope business, is aiming at that business line of Oly that has 70% of world market share.
yoshi

[Ian]

Re: Olympus in corporate turmoil as sacked president and CEO alleges financial incompetence

I personally hope that Olympus can be kept together and that is the aim of Michael Woodford, but I think there is a lot of resentment in Japan at his action in exposing the fraud. Foreign Olympus shareholders want Woodford returned to recapitalise the company.

Ian

[yoshi]

Re: Olympus in corporate turmoil as sacked president and CEO alleges financial incompetence

I personally hope that Olympus can be kept together and that is the aim of Michael Woodford, but I think there is a lot of resentment in Japan at his action in exposing the fraud. Foreign Olympus shareholders want Woodford returned to recapitalise the company.

Ian

Hi Ian, it is completely a misunderstanding that Mr. Woodford is blamed for it. On the contrary tremendous comments at a news site say they want him to be back to the presidency.

He is suggesting that he plans to increase and strengthen the Oly's financial situation by issuing more stocks. At least one big US investment fund does not like the idea, as it means their voting power is reduced.
The existing shareholders suffer from dilution of the value per share in that case.
It is also not sure yet whether Oly can continuously be listed at the stock exchange. so there are lots of uncertainties at the moment.

yoshi

[Ian]

Re: Olympus in corporate turmoil as sacked president and CEO alleges financial incompetence

Hi Yoshi - my understanding is a little different. It is the current board that wants to sell new shares to dilute those of the existing stock holders and so make Woodford's allies weaker. Woodford wants to find new investment without diluting all the existing stock holders' shares - this is by finding new cash investors or by selling new shares to the existing investors, called a Rights Issue, but I understand that this strategy is rare in Japan (but very routine in the UK and the US).

I personally think it's very bad that the existing board is allowed to continue and influence the selection of their replacements. Financial observers have said that if this succeeds it will further reduce the international reputation of Japanese corporate governance.

I know that Japanese business practice is different to the West, but even 11 years ago when I first visited Japan I was hearing that the management structure of corporations was becoming much more westernised so I am surprised by what has happened here. I think for a company so large as Olympus it would be impossible to hide losses in the way that they did if they were based in the UK or the US. And for everyone in the board to vote against Woodford at the beginning of the scandal, just two weeks after promoting him again, is frankly shocking.

Reports suggest that few Japanese shareholders want to see Woodford reinstated and even a poll of ordinary staff at Olympus showed there was little support either.

It now looks like the existing Olympus board will seek investment from its competitors and lose its independence once and for all, which would be a huge shame.

Ian