March 28, 2024

Auditors Not Involved in Cover-Up, Olympus Says

Just how much Olympus’s auditors knew about the manufacturer’s scheme, going back decades, to hide losses has emerged as an important aspect of the continuing investigations into its finances. The two firms signed off on the accounts before Olympus’s president and chief executive, Michael C. Woodford, blew the whistle publicly on the fraudulent accounting last October, just after he was fired by the company’s board.

In a report released last month, an investigative panel appointed by Olympus, which makes digital cameras and the medical optical devices known as endoscopes, had been critical of the auditors’ role, saying the firms had not done enough to expose wrongdoing.

But a separate panel of lawyers hired by Olympus to investigate the roles of the two auditors found that the firms had not violated their fiduciary duties, Olympus said in a statement. The report, released Tuesday, said that Olympus’s executives had so cleverly buried the losses that external auditors could not have uncovered them.

The report instead blamed five former and current Olympus internal auditors for allowing the company to misstate its finances. The five internal auditors are responsible for a total of ¥8.4 billion, or $109 million, in costs related to the cover-up, Olympus said in the statement.

Minoru Ota, a former internal auditor at the company who had headed the company’s accounting unit, is to blame for almost half of that cost, the statement said.

“The masterminds in this case hid their illegal acts through artful manipulation of expert opinion,” the report said.

Olympus did not make Mr. Ota available for comment, and calls to a registered number under that name in Tokyo went unanswered.

Olympus said later Tuesday that it had filed a lawsuit against all five of the internal auditors, demanding ¥500 million from each.

Olympus has admitted that a handful of former and current executives set up a scheme to obscure losses by illicitly keeping unprofitable assets off its books. The company later tried to settle those losses in payments masked as merger-and-acquisition fees.

Last week, the company sued 19 current and former executives, including the current president, Shuichi Takayama, over their roles in concealing the losses. The scandal has led to investigations by the authorities on three continents, and Olympus shares remain on watch by the Tokyo Stock Exchange for possible delisting.

A decision to clear the auditing firms could strengthen Olympus’s chances of staying listed on the exchange, helping the company maintain access to equity capital and remain a going concern. On the other hand, any action to dismiss or sue Ernst Young ShinNihon, its current auditor, could leave the company without a firm willing to audit its finances, jeopardizing Olympus’s compliance with the exchange’s listing requirements.

Still, experts have asked how Olympus could have perpetrated such a scheme without at least the tacit knowledge of its auditors. KPMG audited Olympus until 2009 before handing it off to Ernst Young. The two firms still face possible sanction by the Japanese financial regulator, the Securities and Exchange Surveillance Commission.

“It’s hard to believe that Olympus could have kept such a large-scale cover-up secret from its auditors, who study its finances intimately,” said Shinji Hatta, a professor of auditing at the Graduate School of Professional Accountancy at Aoyama Gakuin University in Tokyo.

But a person with close knowledge of various investigations relating to Olympus said that not only was Olympus adept at hiding its losses, but also that the company may have received help from its banks to misstate its financial position.

KPMG received confirmation statements from some of Olympus’s banks that, with hindsight, were clearly misleading, the person said on condition of anonymity, saying he was not authorized to speak to the news media. The banks told KPMG that there was far more money in Olympus’s accounts at those banks than was actually there, the person said.

Those inaccurate statements have been submitted by KPMG to Japanese regulators to aid in their investigation, and the authorities have begun a broader review that is likely to include the conduct of Olympus’s banks, the person said.

The banks allegedly involved were not immediately available for comment.

Article source: http://www.nytimes.com/2012/01/18/business/global/auditors-not-involved-in-cover-up-olympus-says.html?partner=rss&emc=rss

At Olympus, Scandal and Rising Calls for a Purge

The company’s stock fell 29 percent on Tuesday, and 20 percent more in early trading on Wednesday in Japan, to hit a new low. Shareholders said they were worried that the company could be delisted from the Tokyo Stock Exchange, which could threaten access to financing. Since mid-October, the company’s market value has plunged by 70 percent.

Southeastern Asset Management, the American owner of the second-biggest stake in Olympus, also demanded an extraordinary meeting of shareholders to call for a clean sweep of the board of directors and the firing of top executives.

External investigations of the company’s handling of the merger payments and losses are under way in Japan and in the United States, where the Federal Bureau of Investigation and the Securities and Exchange Commission are looking at the fees, according to people briefed on the matter. With broad investigations still open, it was likely that not just investors, but suppliers and customers, would reconsider doing business with Olympus.

The crisis at Olympus, which has a multibillion-dollar global business making digital cameras and medical equipment, began in mid-October, when the board fired the British chief executive and president, Michael C. Woodford.

The company’s chairman, Tsuyoshi Kikukawa, blamed a culture clash, but Mr. Woodford, a 30-year Olympus employee, said he was fired after trying to force an investigation into a series of acquisitions made before he was appointed chief in September.

Less than two weeks after Mr. Woodford was fired, Mr. Kikukawa resigned. On Tuesday, an outside committee appointed by Olympus concluded that more than $1 billion in merger payouts had been used to hide years of losses on investments, perhaps dating to the 1990s.

The company’s new president, Shuichi Takayama, acknowledged “inappropriate dealings,” but said that no money had flowed out of the company. Hisashi Mori, an executive vice president, had been fired over his involvement in the cover-up, and Hideo Yamada, the corporate auditor, offered his resignation, Mr. Takayama said. In an interview Tuesday, Mr. Woodford said that despite the public admission of mishandling, he was not feeling vindicated because Olympus was still being run by a board of insiders. Mr. Kikukawa and Mr. Mori — as well as Mr. Woodford himself — remain as directors.

“I feel very worried the company still has those individuals at the helm,” he said in a phone interview from London.

The American stakeholder calling for the extraordinary shareholder meeting, Southeastern Asset Management, also said Olympus still needed an overhaul.

Josh Shores, a senior analyst and principal for Southeastern, said Mr. Kikukawa “is definitely in the thick of it. If Kikukawa is still there, he is still exerting massive influence.”

Southeastern also suggested that it did not believe the entire story behind the hidden investment losses had surfaced, saying the company needed to explain the details “as soon as possible.”

Southeastern, which holds an approximately 5 percent stake in Olympus, is an investment firm based in Memphis. It has been managing funds invested in the company since 2004.

Olympus, which is based in Tokyo, had denied any wrongdoing over the deals, made from 2006 to 2008. The admission on Tuesday was a “change of gears” for investors, Mr. Shores said.

It was “something that could negatively impact the value of the medical business,” for example, where Olympus Medical has a 70 percent market share globally in flexible endoscopes, he said.

“This has been a question about what happened to some of that cash flow, and all of a sudden the core medical franchise is at risk of being negatively impacted,” he said. “You are at the point where damage is likely to be done.”

When asked whether he thought Olympus could survive the scandal, he said: “Keep in mind before all of this happened, the stock was 2,500 yen a share. We still thought it was cheap.” The only thing that needs to be changed, he said, is the people running it and an accounting of where the money went.

Mr. Woodford, too, said Olympus still had value. “It’s a good business. You can rebuild the company,” he said.

The developments cast a harsh light on Olympus’s auditors, which have signed off on financial statements that may now be suspect. The auditors, KPMG and Ernst Young ShinNihon, have not been accused of knowingly signing inaccurate statements.

KPMG was Olympus’s auditor for years until it had a falling out with management in 2009. A year earlier, KPMG had advised Olympus against awarding unusual fees to an obscure brokerage firm that advised on a deal. Cash payouts were preferable, the auditor said, but the financial adviser “strongly resisted the cash payment on the grounds that this will crystallize an immediate tax liability,” according to a document provided to The New York Times by Mr. Woodford.

A spokesman for the American arm of Ernst Young, which replaced KPMG in 2009, did not respond to a request for comment. For now, Olympus is still a client.

The payments in question involved $687 million in fees Olympus paid to an obscure financial adviser over its acquisition of the British medical equipment maker Gyrus in 2008. That fee amounted to roughly a third of the $2 billion acquisition price, a fee amount more than 30 times the norm.

Ben Protess contributed reporting.

Article source: http://www.nytimes.com/2011/11/09/business/global/at-olympus-scandal-and-rising-calls-for-a-purge.html?partner=rss&emc=rss

Japan’s Olympus Ousts Michael Woodford as President

In a public ousting rare in staid corporate Japan, Olympus on Friday demoted its British chief executive, Michael C. Woodford, after only six months in the job, citing a management culture clash with the company’s mainly Japanese executive team.

“We hoped that he could do things that would be difficult for a Japanese executive to do,” Olympus’s chairman, Tsuyoshi Kikukawa, said at a news conference. “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.”

Shares in the company, based here, lost nearly a fifth of their value after Olympus said its board had voted to strip Mr. Woodford, 51, of his positions as chief executive and president.

Mr. Woodford, a 30-year Olympus veteran, had turned around the company’s European operations through aggressive cost-cutting and was gearing up to do the same across the Japanese parent company.

But Mr. Kikukawa, who had preceded him as chief executive, indicated that Mr. Woodford had gone too far. He 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.”

The company said Mr. Woodford would remain a board member, but one without voting rights, until the annual shareholders’ meeting next year, when a new slate of directors will be presented.

Mr. Woodford could not be reached for comment.

It is 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. Others, who have more successfully navigated the cultural shoals, include Howard Stringer, the Welsh-born American chief executive of Sony; Carlos Ghosn, the Lebanese-Brazilian president of Nissan Motor; and Craig Naylor, an American who runs Nippon Sheet Glass.

Even rarer than Mr. Woodford’s outsider status, though, was his swift dismissal. Japanese companies often keep their top executives in place even when the company is losing money.

At the time of Mr. Woodford’s appointment, Mr. Kikukawa had given him a glowing public review, describing his loyalty to Olympus as “above the rest.” Mr. Woodford was also presented as the new global face of a company, like many others in Japan, that has increasingly looked overseas to make up for a shrinking market at home.

But in a sign of the headwinds he encountered at Olympus, Mr. Woodford, in an interview published recently, described 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 the magazine of the British Chamber of Commerce in Japan.

“Status quo is still very powerful in Japan,” he continued in the interview. “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 ending last March, net profit at Olympus plunged 85 percent from the previous year, to 7.4 billion yen (about $95 million), as losses at its camera division weighed on the company’s profitable medical equipment business. The camera division lost 15 billion yen, a performance Mr. Woodford had called “unacceptable.”

Article source: http://feeds.nytimes.com/click.phdo?i=665fe42338d73920fd25188a161bd812