Former Olympus Chief Ends Bid to Replace Management

Although he uncovered accounting fraud at Olympus that revealed hidden losses of $1.7 billion, Mr. Woodford failed to win over big Japanese shareholders including the firm’s main lenders, which support a board that has been blamed for failing to provide proper oversight.

The decision by Mr. Woodford, who was fired as chief executive in October, leaves foreign shareholders, who want a new slate of directors, without a champion to lead any proxy battle when the company convenes an extraordinary shareholders meeting.

Mr. Woodford also said Friday that he would sue Olympus for unfair dismissal and has instructed lawyers to start legal action in Britain. “There are no grounds whatsoever for dismissal,” Mr. Woodford told a small group of reporters in Tokyo. He said he would brief the media on Friday afternoon.

The company’s main lender and major shareholder, the Sumitomo Mitsui Financial Group, is backing existing management, which is seeking a capital tie-up with a rival company to bolster its finances. The current management is led by Olympus’s chief, Shuichi Takayama.

The company has lost more than $5 billion in market value since it fired Mr. Woodford.

Olympus’s net assets are dangerously thin after it corrected its accounts to include the effects of its 13-year fraud. Shareholder equity was just 42.9 billion yen ($560 million) at the end of September, or just 4.5 percent of total assets — less than a quarter of what is seen as a healthy cutoff.

In a sign that lenders are in the driver’s seat at Olympus, the company appointed the industrialist Shiro Hiruta, who has connections to Sumitomo Mitsui Financial, as the head of an outside panel to advise the firm.

The bank, which declined a request from Mr. Woodford for a meeting, also holds a 3.4 percent equity stake in Olympus.

“The cross-shareholding system in Japan, while clearly serving the country well in the years following the Second World War is in today’s world harmful,” Mr. Woodford said in a statement.

“Such a compliant approach removes one of the essential safeguards in relation to governance and also allows the boards of companies which are underperforming to remain in office,” he added.

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