A delisting probably would have destroyed its share price, which has fallen by half since the scandal began. The decision also makes the company less vulnerable to being dismantled and sold for its parts.
Still, the move to keep the company listed brings into sharp relief the inconsistent way Japanese authorities and financial institutions have policed and censured white-collar crime in recent years. Analysts have warned that the inconsistencies are confusing foreign investors and undermining confidence in Japanese equities.
The Tokyo exchange, which exercises considerable leeway in deciding whether to keep a troubled stock listed, said that the fraud at Olympus had been “the sole work of a number of participants” and that their actions “had no direct relation to the core business.” The exchange “cannot deem that investor judgment was considerably distorted to the extent of warranting delisting,” it said.
Olympus, which also makes medical and industrial endoscopes, will be fined 10 million yen, or $130,000, the maximum penalty set by the exchange. The company will also be placed on a “security on alert” list and will be required to report to the Tokyo exchange, over a period of three years, ways that it is improving its corporate governance.
The issue contrasts with a case in 2005, when the Internet start-up company Livedoor was accused of manipulating its earnings by more than $40 million and was quickly delisted. Its top executives were arrested and sentenced to jail terms.
The next year, financial regulators accused Nikko Cordial, a Japanese brokerage firm, of padding its books by almost $350 million. But like Olympus, Nikko Cordial avoided a delisting, fueling accusations that the Japanese authorities coddled established players while punishing newcomers.
The perception of arbitrary outcomes, and the message it sends about Japan’s tolerance for bad corporate governance, is hurting investor confidence, analysts say.
“Would I give the car keys to the drivers of Japanese equities?” Nicholas Smith, a strategist at CLSA Asia Pacific Markets, wrote in a research note. “On the basis of this sorry story, it is hard to find a reason to give them the remote for the video game of the car.”
Olympus said it “solemnly accepted” the Tokyo exchange’s decision and promised to improve its commitment to corporate governance. “We understand that this decision is based on the view that there is a strong need for us to improve our internal supervision,” it said.
Top Olympus executives admitted in November that the company had conducted an effort, which spanned decades, to cover up $1.7 billion in investment losses. In December, Olympus accounted for some of the losses by revising five years of statements. The accounting showed shareholders’ equity falling to just 42.9 billion yen ($557 million) and cast a shadow over the company’s long-term viability.
The admissions came after Olympus fired its former chief executive, Michael C. Woodford, who had questioned the company’s board over a series of unusually large acquisition payouts that were later found to be part of the company’s false accounting. Mr. Woodford, who is British, blew the whistle on those payouts, helping to uncover a global scheme that led to public investigations in Japan, Britain and the United States.
Mr. Woodford later started a campaign to return to Olympus with fresh directors who were untainted by the scandal. Despite backing from foreign investors, however, he abandoned his bid this month, after the company’s biggest institutional investors in Japan stood by the current management.
This week, Olympus said a panel of lawyers hired by the company had found that its outside auditors, KPMG Azsa and Ernst Young ShinNihon, had not been complicit in the false accounting, though those firms remained under investigation by the Japanese authorities over their possible roles in the scandal. The report, instead, blamed five former and current Olympus internal auditors for allowing the company to misstate its finances.
Article source: http://feeds.nytimes.com/click.phdo?i=ddb4868163e0dcd0927afc800a2b7a3c
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