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Suspended Sentences in Olympus Fraud Case

July 3, 2013 by Leave a Comment

However, a suspended three-year sentence for the executive, Tsuyoshi Kikukawa, means he is likely to avoid prison.

Hideo Yamada, a former auditing officer implicated in the scandal, was also given a suspended three-year sentence Wednesday, and Hisashi Mori, a former executive vice president, received a lesser suspended sentence.

The Tokyo District Court ordered Olympus to pay 700 million yen, or $7 million, in fines for falsifying its financial reports, which the company said was to mask hefty investment losses. For its financial year that ended last March, Olympus booked a net profit of ¥8 billion.

The sentencing brings to a tentative close a tense scandal that pitted a former Olympus president, a Briton, against his Japanese colleagues, who eventually admitted to running a cover-up scheme that spanned two decades.

Michael C. Woodford, Olympus’s first foreign chief executive, was abruptly fired in October 2011 after he presented the company’s board with evidence of accounting fraud and urged its directors to come clean.

Mr. Kikukawa, the chairman at the time, took over as president and initially told the news media that Mr. Woodford’s Western management style was not a good match for Olympus. But a campaign by Mr. Woodford to air his side of the story pressured the company into conducting an independent review.

The investigation implicated Mr. Kikukawa and two other executives in an elaborate scheme to cover up losses, involving offshore money, inflated acquisition payouts and a network of obscure brokers.

The scandal cast a pall over confidence in corporate governance at Japan’s biggest multinationals, as investors asked whether Olympus had been a bad apple or whether more Japanese corporations were hiding bombshells in their financial books.

Its outcome has also been seen as a test of how vigorously white-collar crime in Japan would be investigated and punished by the authorities, who have been accused of being soft, especially with large, well-connected corporations.

Olympus’s treatment of Mr. Woodford has shone a negative light on Japan’s recent efforts to protect and encourage whistle-blowers in a business culture that has long advocated corporate loyalty and censured outspoken employees. Japan passed a law to protect whistle-blowers only seven years ago, and some legal scholars say the protections are not enough to encourage employees to report on corporate wrongdoing.

Mr. Kikukawa, president at Olympus for a decade before Mr. Woodford took over, had pleaded guilty to the charges. But the defense argued that jail time would be too harsh for an executive who had already suffered social censure for his mistakes.

Tokyo prosecutors had asked for a five-year jail term for Mr. Kikukawa and a 1 billion-yet fine for Olympus, according to Kyodo News.

In the court decision Wednesday, Judge Hiroaki Saito said that the former executives had simply taken over a scheme started in the 1990s by their predecessors. He also pointed out that there was no evidence that Mr. Kikukawa and his colleagues had pocketed any money.

Mr. Kikukawa and Mr. Yamada ‘’inherited a negative legacy and weren’t involved in the decision-making process to hide losses,’’ Mr. Saito was quoted in local media reports as saying in court. ‘’They didn’t benefit personally from hiding losses.’’

Masatoshi Kishimoto and Toshiro Shimoyama, the former executives who are thought to have made the decision to hide the losses, were not charged because the statute of limitations had expired.

On an Olympus Web site dedicated to “restoration of trust” in the company, the current president, Hiroyuki Sasa, apologized for the “shortcomings in corporate governance that resulted in financial improprieties.”

Article source: http://www.nytimes.com/2013/07/04/business/global/suspended-sentences-in-olympus-accounting-fraud-case.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

In Rare Move, Olympus Fires Its Chief

October 14, 2011 by Leave a Comment

Shares in the company, which is based in Tokyo, lost nearly a fifth of their value after Olympus said its board had voted to strip Michael Woodford, 51, of his position as president and chief executive.

The Olympus chairman and former chief executive, Tsuyoshi Kikukawa, suggested that a culture clash between Mr. Woodford and the company’s largely Japanese top management had become too disruptive.

But the dismissal also came as Mr. Woodford, a 30-year Olympus veteran who turned around the company’s European operations through aggressive cost cuts, geared up to do the same across the Japanese company.

At a news conference Friday, Mr. Kikukawa implied that Mr. Woodford had gone too far.

“We hoped that he could do things that would be difficult for a Japanese executive to do,” Mr. Kikukawa said. “But he was unable to understand that we need to reflect a management style we have built up in our 92 years as a company, as well as Japanese culture,” he said.

It has been a swift reversal of fortune for Mr. Woodford, who leapfrogged scores of more likely candidates to clinch the top job in February, making him one of a handful of foreigners to run a large Japanese corporation.

The swift dismissal is also rare at Japanese companies, which often retain top executives even when the company is losing money.

At the time of his appointment, Mr. Kikukawa gave him a glowing review, describing the Briton’s loyalty to Olympus as “above the rest.”

Mr. Woodford was also praised as the new global face of a company, like many others in Japan, that had looked overseas to make up for a shrinking market at home.

But in a sign of the headwinds he may have faced at Olympus, Mr. Woodford had described, in an interview with the magazine of the British Chamber of Commerce in Japan, the difficulties of navigating Japan’s closed corporate culture.

“I understand why Japan gets tagged with the ‘unique’ label; it’s one of the most impenetrable cultures for outsiders,” he said in a cover story in the magazine’s October issue.

“Status quo is still very powerful in Japan,” he said. “When you change something, you close something or withdraw from something, you will get resistance based on my predecessor’s decisions, especially when something is seen as sacrosanct or a holy cow.”

Mr. Woodford had taken the helm at Olympus at a tough time. In the year through March, net profit at Olympus fell 85 percent from the previous year to ¥7.4 billion, or $96 million, as losses at its camera division weighed on the company’s profitable medical equipment business. In that year alone, the cameral division lost ¥15 billion, a performance Mr. Woodford had called “unacceptable.”

Those assurances may not have been enough to quell growing unease among his Japanese colleagues, however. Among the differences cited by Olympus were disagreements between top management and Mr. Woodford over restructuring the company’s research and development division.

Still, the plan had given Olympus enough cause to raise its earnings forecast for the year through March 2012 to ¥18 billion, a 140 percent increase from the previous year.

Some analysts swiftly cut their ratings on Olympus following Mr. Woodward’s dismissal. The Japanese investment bank, Nomura, said it no longer expected bold cost cuts or an improvement in earnings in the next fiscal year.

Mr. Woodford’s plight highlights the sway that outgoing executives continue to hold at Japanese companies, often serving as powerful chairman — a practice that makes it difficult for new management to bring about big changes.

That was laid bare at the conference on Friday. Mr. Kikukawa, the chairman, complained that Mr. Woodford would often bypass the heads of company divisions to give orders directly to the rank and file.

Mr. Woodford “ignored our organizational structure and made decisions entirely on his own judgment,” Mr. Kikukawa said. “I told him repeatedly he couldn’t do that, but he didn’t listen.”

Olympus said Mr. Kikukawa would take back his title as president and chief executive. Mr. Woodford will remain a director without representative rights until the next annual shareholders’ meeting, normally held in June, the company said. Mr. Woodford could not immediately be reached for comment.

Mr. Woodford had been part of a small club of non-Japanese at the helm of companies here, including Howard Stringer, the Welsh-born American chief executive of Sony; Carlos Ghosn, the Lebanese-Brazilian president of Nissan Motor; and Craig Naylor, who heads Nippon Sheet Glass.

Article source: http://www.nytimes.com/2011/10/15/business/global/in-rare-move-olympus-fires-its-chief.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

DealBook: Bank of New York Mellon Chief Resigns in a Shake-Up

September 1, 2011 by Leave a Comment

Robert P. Kelly, who stepped down as chairman and chief executive of Bank of New York Mellon.Jin Lee/Bloomberg NewsRobert P. Kelly, who stepped down as chairman and chief executive of Bank of New York Mellon. Gerald L. Hassell, below, is his successor.Gerald L. Hassell, the new chairman and chief executive of Bank of New York Mellon.Amanda Gordon/Bloomberg News

9:27 p.m. | Updated

Bank of New York Mellon’s chief executive and chairman, Robert P. Kelly, stepped down late Wednesday because of “differences in approaches to managing the company,” the bank said.

Pressure on the bank has been growing for months. While it has avoided the mortgage woes that have bedeviled the nation’s biggest financial institutions, it has come under scrutiny because of accusations that it and other custody banks shortchanged clients when executing currency trades for foreign transactions. In addition, Bank of New York’s performance has lagged that of its chief rival, State Street.

A spokesman for the bank said Mr. Kelly’s departure had nothing to do with the foreign-exchange lawsuits.

A person close to the board, who was not authorized to speak on the record, said that the decision was not rooted in the litigation or in any one particular issue. Rather, this person said, Mr. Kelly’s departure was the result of differences “in terms of management style.” Another person involved in the management shake-up, who was also not authorized to speak on the record, said the directors felt that Mr. Kelly was not as engaged in the day-to-day operations as they would have liked. Both people said that the rift between the board and Mr. Kelly had been brewing for some time.

Gerald L. Hassell, 59, the bank’s president and a board member since 1998, was appointed chairman and chief executive.

Bank of New York Mellon is not as well known as institutions like Bank of America or JPMorgan Chase, in part because it has no retail branches. But it is one of the world’s largest custodial banks and asset managers, with $26.3 trillion in assets under custody and administration and $1.3 trillion in assets under management. It was created in 2007 by the $16.5 billion merger of Bank of New York and Mellon Financial of Pittsburgh.

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Mr. Kelly, 57, had been a candidate to succeed Ken Lewis as chief executive of Bank of America. But his talks with the bank became public in 2009 and apparently broke down over compensation. At the time, some Wall Street insiders were surprised that Bank of New York’s board did not dismiss him once it became known that he was negotiating to leave.

In December 2009, Mr. Kelly sent a note to employees saying that while he had been approached by another bank, “I firmly concluded that my place is here at BNY Mellon.”

A native of Nova Scotia, Mr. Kelly worked at Toronto-Dominion Bank for years. He was considered a candidate to one day run the bank. In 2000, however, he took a job at First Union Corporation. It acquired Wachovia in 2001, and he became chief financial officer of the combined company, named Wachovia.

He left before Wachovia made what turned out to be the disastrous decision to buy Golden West Financial, a California lender that eventually dragged down the bank with mortgages that soured. He had moved to become chief executive of Mellon Financial in 2006 and when Mellon merged with Bank of New York in 2007, he got the top job.

As an executive, he tends to fly under the radar on Wall Street. But the bank, like its peers, has had some recent setbacks.

While Bank of New York did not have the same mortgage problems as other banks, it did accept $3 billion in taxpayer money during the financial crisis. Still, it was among the first banks to pay back the money.

More recently, the bank has come under scrutiny over how it priced currency trades for some clients, including many pension funds. Several state attorneys general have filed lawsuits against the bank, contending that it cheated pension funds by selecting improper prices when processing currency trades.

Jeep Bryant, a Bank of New York spokesman, said on Wednesday that the lawsuits were “completely without merit and we are defending against them vigorously.”

Mr. Kelly did not return a call seeking comment.

Shares of Bank of New York, like other financial stocks, have struggled in the last year. Yet since the beginning of the year, its shares have fallen 31 percent compared with a 23 percent decline in shares of State Street.

Alexander Blostein, a research analyst who covers Bank of New York Mellon for Goldman Sachs, said, “The announcement of Mr. Kelly’s resignation and its timing were unexpected, which introduces new uncertainty to the stock, in our view.”

“While the exact reasons behind Mr. Kelly’s departure are unclear,” Mr. Blostein said, “we believe the firm’s focus under the new leadership could shift to more aggressive cost management and business rationalization and away from acquisitions.”

Analysts say Bank of New York has underperformed State Street in part because its business is more sensitive to interest rates, and the current prolonged low interest rate environment has eaten into profits.

Article source: http://feeds.nytimes.com/click.phdo?i=fa64bf5ed68b0ab8aa403f7d35719568

Filed Under: Business News Tagged With: , ,