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Auditors Not Involved in Cover-Up, Olympus Says

January 17, 2012 by Leave a Comment

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

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Woodford Admits Defeat in Effort to Return to Olympus

January 6, 2012 by Leave a Comment

But Mr. Woodford ended that bid on Friday, saying he had been unable to garner the support of Olympus’s Japanese institutional investors and creditors.

“Despite one of the biggest scandals in history, the Japanese institutional shareholders have not spoken one single word of criticism, in complete and utter contrast with overseas shareholders, who were demanding accountability,” Mr. Woodford said Friday. “I’m taking the plane and saying goodbye to Japan as a businessman.”

For the Japanese business world, it could prove a damaging conclusion to a scandal that had come to be seen as a test of just how far the country would go to police white-collar crime at Olympus, a maker of cameras and medical endoscopes.

A perceived reluctance on the part of financial regulators to pursue the scandal, as well as the tacit endorsement of the Olympus board by friendly bankers and Japanese institutional shareholders, has reinforced views among foreign investors that entrenched executives in Japan are still able to thwart any attempts at change. The company’s shares have also avoided — for now, at least — a delisting from the Tokyo Stock Exchange, a move that would have decimated shareholder value.

Mr. Woodford said he had instructed his lawyers to prepare to sue Olympus for unfair dismissal. The Olympus board has said that Mr. Woodford was let go because it did not like his aggressive Western management style.

“I got fired and lost my job for doing the right thing, and they’re still there,” Mr. Woodford said.

He said the strain that his long struggle was putting on his family back in England, especially his wife, was also a big consideration in his decision to abandon the fight.

Olympus’s stock market value has dropped by half since Mr. Woodford was fired in mid-October. Its shareholders’ equity has also been exposed as dangerously low, at just 42.9 billion yen ($556 million) at the end of September, casting a shadow over the company’s long-term viability. Many foreign investors have said the current management was tainted and should leave, for the sake of robust corporate governance.

A fund manager in the United States, Southeastern Asset Management, which holds about 5 percent of Olympus’s shares and has been an outspoken critic of the company, previously warned that any attempts by the incumbent board to protect its own interests “would deal a severe blow to the reputation of Japan’s capital markets and corporate governance.” Representatives of the fund manager were not immediately available for comment.

Top Olympus executives acknowledged in November that the company had indeed conducted an effort spanning decades to cover up $1.7 billion in investment losses in a global scheme that has led to investigations by the authorities in Japan, the United States and Britain.

Investigators are looking into what they say is a scheme that began in the 1990s to hide losses by selling bad assets to funds and other entities and later settling those losses through payments masked as acquisition fees.

Three executives implicated by an independent panel have left Olympus over the scandal, but the rest of the board, led by the current chief executive, Shuichi Takayama — a former board member who took the helm of the company in November — has been scrambling to retain control. Olympus has refused to reinstate Mr. Woodford or to offer him an apology.

Instead, Olympus is said to be looking to raise capital from domestic investors, which would dilute the influence of overseas shareholders and make fundamental changes less likely.

Last month, the Nikkei business daily reported that Olympus might issue about 100 billion yen in new preferred shares, and that Japanese companies like Fujifilm and Sony might be possible investors. Those two companies, however, have denied that any such investment was in the works.

Olympus’s biggest lenders, including the Sumitomo Mitsui Financial Group, which also holds an equity stake in the company, have backed the board. Mr. Woodford said the bank had refused to meet with him. Sumitomo Mitsui has refused to comment.

Japan’s system of cross-shareholdings between companies with business ties — like companies and their main banks — means that top executives at Japanese companies face little pressure from investors to improve performance or bolster corporate governance.

Trying to beat that system, Mr. Woodford rallied support among Olympus’s foreign shareholders, setting up a proxy fight with the board. He also lined up a fresh slate of directors, made up of people he said were “impressive” members of the Japanese business community.

The plan, he said, was to present those candidates at a shareholder meeting that the current chief executive, Mr. Takayama, had promised to hold in March or April.

But Mr. Woodford said Friday that he had become convinced that even if he won the proxy fight and returned to the company, the schism between Japanese and foreign shareholders would make any real turnaround impossible.

“It wouldn’t be healthy,” he said. “It was that realization that made me stop.”

Article source: http://www.nytimes.com/2012/01/07/business/global/former-chief-ends-his-bid-to-overhaul-olympus.html?partner=rss&emc=rss

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Former Chief Ends His Bid to Overhaul Olympus

January 6, 2012 by Leave a Comment

But in an outcome that may confirm foreign investors’ worst suspicions about corporate clubbiness here, Michael C. Woodford, the ousted chief executive of Olympus, ended that bid Friday, saying he had been unable to garner the support of the company’s Japanese institutional investors and creditors.

“Despite one of the biggest scandals in history, the Japanese institutional shareholders have not spoken one single word of criticism, in complete and utter contrast with overseas shareholders, who were demanding accountability,” Mr. Woodford, who is British, said Friday. “I’m taking the plane and saying goodbye to Japan as a businessman.”

Mr. Woodford said he had instructed his lawyers to prepare to sue Olympus for unfair dismissal. The Olympus board has said that Mr. Woodford was let go because it did not like his aggressive Western management style.

“I got fired and lost my job for doing the right thing, and they’re still there,” Mr. Woodford said.

He said the strain that his long struggle was putting on his family back in England, especially his wife, was also a big consideration in his decision to abandon the fight.

For the Japanese business community, it could prove a damaging conclusion to a scandal that had come to be seen as a test of just how far the country would go to police white-collar crime at Olympus, a maker of cameras and medical endoscopes that is one of the country’s vaunted blue-chip companies.

A perceived reticence on the part of financial regulators to pursue the scandal, as well as the tacit endorsement of the Olympus board by friendly bankers and Japanese institutional shareholders, has reinforced views among foreign investors that entrenched executives in Jpaan are still able to thwart any attempts at change. The company’s shares have also avoided — for now, at least — a delisting from the Tokyo Stock Exchange, a move that would have decimated shareholder value.

Still, the company’s stock market value has dropped by half since Mr. Woodford was fired in mid-October. Its shareholders’ equity has also been exposed as dangerously low, at just ¥42.9 billion, or $556 million, at the end of September, casting a shadow over the company’s long-term viability. Many foreign investors have said the current management is tainted and should leave, for the sake of robust corporate governance.

A U.S. fund manager, Southeastern Asset Management, which holds about 5 percent of Olympus’s shares and has been an outspoken critic of the company, previously warned that any attempts by the incumbent board to protect its own interests “would deal a severe blow to the reputation of Japan’s capital markets and corporate governance.” Representatives of the fund manager were not immediately available for comment.

Top Olympus executives acknowledged in November that the company had indeed conducted an effort spanning decades to cover up $1.7 billion in investment losses in a global scheme that has led to investigations by the authorities in Japan, the United States and Britain.

Investigators are looking into what they say is a scheme that began in the 1990s to hide losses by selling bad assets to funds and other entities and later settling those losses through payments masked as acquisition fees.

Three executives implicated by an independent panel have left Olympus over the scandal, but the rest of the board, led by the current chief executive, Shuichi Takayama — a former board member who took helm of the company in November — has been scrambling to retain control. Olympus has refused to reinstate Mr. Woodford or to offer him an apology.

Instead, Olympus is said to be looking to raise capital from domestic investors, which would dilute the influence of overseas shareholders, making fundamental changes less likely.

Last month, the Nikkei business daily reported that Olympus might issue about ¥100 billion in new preferred shares, and that Japanese companies like Fujifilm or Sony might be possible investors. Those two companies, however, have denied that any such investment is in the works.

Backing the board have been Olympus’s biggest lenders, including Sumitomo Mitsui Financial Group, which also holds an equity stake in the company. Mr. Woodford said the bank had refused to meet with him. Sumitomo Mitsui has refused to comment.

Japan’s system of cross-shareholdings between companies with business ties — like companies and their main banks — has meant that top executives at Japanese companies have faced little pressure from investors to improve performance or bolster corporate governance.

Trying to beat that system, Mr. Woodford had rallied support among Olympus’s foreign shareholders, setting up a proxy fight with the board. He also lined up a fresh slate of directors, made up of people who he said were “impressive” members of the Japanese business community.

The plan, he said, was to present those candidates at a shareholder meeting that the current chief executive, Mr. Takayama, has promised to hold in March or April.

But Mr. Woodford said Friday that he had become convinced that even if he had won the proxy fight and returned to the company, the schism between Japanese and foreign shareholders would make any real turnaround impossible.

“It wouldn’t be healthy,” he said. “It was that realization that made me stop.”

Article source: http://feeds.nytimes.com/click.phdo?i=a1cf024a5ad10a9436519ef6fa299c28

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Woodford Drops Bid to Return as Olympus Chief

January 5, 2012 by Leave a Comment

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

“Despite my having done the right thing, none of the major Japanese institutional shareholders have offered one word of support to me,” Woodford said in a statement sent by email to media organizations.

The decision by Woodford, who was fired as chief executive in October, leaves foreign shareholders, who want a new slate of directors, including U.S. fund manager Southeastern Asset Management, without a champion to lead any proxy battle when the company convenes an extraordinary shareholders meeting as early as March.

Woodford said he would brief the media at 1500 JST (1 am ET).

The company’s main lender and major shareholder Sumitomo Mitsui Financial Group (SMFG) is backing existing management led by CEO Shuichi Takayama, which is seeking a capital tie up with a rival company to bolster its finances.

It’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 ($556 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 cut-off. A 20 percent proportion of equity would imply that it needs to raise about 150 billion yen in fresh equity.

Local media has reported that Sony, Fujifilm Holdings and Panasonic Corp are among the candidates that may ride to the rescue of Olympus.

CORNERSTONE

Japan’s big banks such as SMFG and Mitsubishi UFJ Financial Group are often cornerstone investors in Japanese blue chips, with major equity and debt holdings. That puts them in a powerful position to influence board decisions.

In a sign lenders are in the driving seat at Olympus, the company appointed industrialist Shiro Hiruta, with connections to SMFG, as the head of an outside panel to advise the firm on a management shake-up.

Hiruta was formerly head of chemicals firm Asahi Kasei, which has close ties to SMFG, the biggest lender to Olympus with 227.5 billion yen ($2.95 billion) in outstanding loans and bonds, according to company data and sources.

The bank, which declined a request from 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,” Woodford said in his 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. ($1 = 77.1100 Japanese yen)

(Reporting by Tim Kelly; Editing by Michael Watson and Joseph Radford)

Article source: http://feeds.nytimes.com/click.phdo?i=a67e7bc8f700639456bab8eac01813ed

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Japan’s Disgraced Olympus May Rehire Ex-C.E.O.

December 15, 2011 by Leave a Comment

Woodford, an Englishman who was a rare foreign CEO in Japan, went public with his concerns over crooked accounting at Olympus after his dismissal in October, leading to the uncovering of a $1.7 billion fraud that has left the company badly weakened.

He is now lobbying shareholders of the maker of cameras and medical equipment to support his reinstatement and replace the disgraced board with a new team that he is assembling.

“We saw a shameful state of the company’s finances yesterday, but not one Japanese shareholder stood up and said publicly ‘Mr Woodford is right, thank you Mr Woodford’, anything, a total, an utter silence,” Woodford said, a day after Olympus released its restated accounts on Wednesday.

His comeback campaign has highlighted the contrasting opinions of foreign and Japanese shareholders on the future leadership of Olympus, which has been found to have carried on a $1.7 billion fraud to hide investment losses for 13 years.

At least three big foreign shareholders have backed Woodford’s bid to return to the company where he spent three decades working his way up from salesman to CEO. But not one Japanese shareholder or lender has openly supported him since he blew the whistle, leaving him clearly frustrated.

Woodford also launched an emotional attack on the firm’s current Japanese boss.

“Should that man be the president and custodian of one of Japan’s iconic companies?” he said of Olympus President Shuichi Takayama, one of the directors who had voted unanimously to sack him after he had queried the firm’s dubious book-keeping.

“How dare he!” Woodford added, calling Takayama’s handling of the whole affair “Machiavellian.”

Woodford also said he had discussed refinancing options for Olympus with private equity firms and investment banks, and also voiced concerns that Takayama was planning to raise money by placing new shares with a third party.

That would dilute the stakes of existing owners and weaken their hand in a proxy battle between Woodford and whoever the existing board chooses as its next CEO candidate.

“It would dilute the existing shareholders, so then I could not win a proxy fight,” he said.

The existing board, led by Takayama, has said he and fellow directors will resign soon, to make way for a new board to be elected by shareholders at a meeting in March or April, and that the board wants to choose its successors before it quits.

It has set up an external panel to advise on board candidates and other management issues.

Takayama even suggested on Thursday the board would consider Woodford as a candidate for his old job, but few analysts gave the gesture any credence given the hostility between the pair.

Takayama, currently the most senior executive after several resignations since Woodford’s departure, said he had no plans to meet Woodford, who some major Japanese shareholders and lenders privately oppose, according to a banking source.

“As of now, I have no plans to meet,” he said.

Woodford says the board is discredited and has no right to choose its successors, and on Thursday expressed anger at signs that not all of the incumbent board would resign.

He is assembling his own team of candidates for a new board with himself at the helm.

NEED FOR FRESH CAPITAL OR TIE-UPS

Woodford also went public with a plea to meet the head of Sumitomo Mitsui Banking Corp (SMBC), the main lender to Olympus, a possible sign that he was having trouble getting access.

“My representatives have asked for a formal meeting with SMBC. I hope they at least give me the courtesy of listening to me,” he said. The bank, which is the core banking unit of Sumitomo Mitsui Financial Group, said it had not received the request and declined comment.

Article source: http://www.nytimes.com/reuters/2011/12/15/business/business-us-olympus.html?partner=rss&emc=rss

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Olympus Board Hints at Quitting Over Fraud

December 8, 2011 by Leave a Comment

At a news conference on Wednesday, Olympus said one director had resigned, others may follow and the entire board could go once the company submitted its second-quarter earnings, due by Dec. 14.

An external investigative panel report, released on Tuesday, concluded that several former executives spent 13 years running a complex scheme to hide huge investment losses. “Our corporate governance was severely criticized,” Shuichi Takayama, the president of Olympus, told reporters. “As the representative of the company, I apologize sincerely.”

The former chief executive, Michael C. Woodford, who was fired in October after questioning murky merger deals, is campaigning to return to lead Olympus, a 92-year-old Japanese maker of cameras and endoscopes. He has called for an extraordinary shareholders’ meeting to pick a new board.

Mr. Takayama, who took over after the scandal became public, said the earliest such a meeting could be held was late February, and the management would not resign before then — after picking its own slate of candidates.

“We don’t know what Mr. Woodford is thinking, but he has said he will pursue a proxy fight, so we think there will certainly be a proposal,” Mr. Takayama said.

“We will have the shareholders meeting decide,” he said. But he did praise Mr. Woodford for “pointing out problems that the current board failed to do.”

Olympus also set up an outside committee to advise whether to file criminal complaints or sue those responsible for the scandal, which has halved the value of the firm’s shares and fanned fears about Japan’s corporate governance generally.

Announcing the new committee, which is to report its recommendations by Jan. 8, the once-proud firm also said that a senior executive director, Makoto Nakatsuka, had quit the board, the third to do so since the scandal erupted.

Mr. Nakatsuka was found on Tuesday to have helped the two main architects of the cover-up — a former auditor and a former executive — to manage Olympus’s financial assets in the late 1980s, when it embarked on risky investments that led to the losses.

Olympus, which still risks being delisted from the Tokyo stock market and forced into a humiliating sale of core assets, said it would form a second external panel to examine the responsibility of the company’s auditors.

A report released Tuesday, prepared by outside legal and accounting specialists, said Olympus management was “rotten to the core,” ruled by a culture of absolute corporate loyalty and a desire to flatter financial performance.

Article source: http://feeds.nytimes.com/click.phdo?i=71fcfe27701b7bb8256c75408f04daf3

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At Olympus, Scandal and Rising Calls for a Purge

November 9, 2011 by Leave a Comment

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

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At Olympus, Western Questions for Old-School Ways

October 27, 2011 by Leave a Comment

The other was an Olympus hand of almost half a century, with a decade at the company’s helm, credited with kick-starting its camera business, and long a witness to its ups — and downs.

But when the English president, Michael C. Woodford, confronted the Japanese chairman, Tsuyoshi Kikukawa, last summer over $1 billion in murky payouts and questionable acquisitions Olympus had made during Mr. Kikukawa’s tenure, their worlds clashed.

And so began a boardroom battle that has now cost both men their jobs, wiped out over half the company’s stock-market value — and once against cast a harsh spotlight on seemingly grave lapses of corporate governance at a top-tier Japanese company.

On Wednesday, Mr. Kikukawa, 70, resigned as Olympus chairman, just two weeks after he had publicly fired Mr. Woodford, 51, citing his inability to fit in with Olympus’s Japanese top management team. (“I don’t think he liked Japan,” Mr. Kikukawa wrote in an e-mail he sent to the company’s employees around the world, explaining the firing of Mr. Woodford.)

In a statement Wednesday announcing his own resignation, Mr. Kikukawa said that he regretted “causing concern” to shareholders, but insisted that there was “no corruption” involved in the acquisitions that Mr. Woodford had questioned.

Mr. Kikukawa was replaced by Shuichi Takayama, a managing director of the company, who bowed deeply in front of flashing cameras and promised to “spearhead efforts to restore confidence” in Olympus. But the appointment of Mr. Takayama, who is 61 and a 30-year Olympus veteran, has raised investor questions over whether his long ties to the company and the board can allow him the independence to conduct a comprehensive investigation of the claimed misdeeds.

The Olympus debacle involves charges of money-laundering, false accounting and other fraudulent practices totaling more than a billion dollars — potentially one of Japan’s largest-ever financial scandals.

At the center of the storm are exorbitant fees of $687 million that Olympus paid to now defunct advisory companies for its 2008 acquisition of Gyrus, a British medical equipment maker. Also under scrutiny are hundreds of millions of Olympus dollars that were spent buying three unprofitable start-up companies, only to have Olympus quickly write off three-quarters of their value.

In a hastily called press conference Thursday morning, Mr. Takayama said that the company had thought the multimillion-dollar advisory fee for the Gyrus deal “would pay off.”

But the scandal is also a tale of cultural expectations, dashed on both sides, and a look at an old-school way of doing business in Japan that continues to resist the due diligence and best practices that the corporate West expects as a matter of course.

In some ways, the Olympus episode harks to an older — and more freewheeling — era of Japanese deal-making, before the bursting of the country’s economic bubble in the 1990s and subsequent regulatory reform efforts. Back then, small Japanese shareholders — at times purported to have organized crime links — would threaten to cause ruckuses at corporate annual meetings unless they were paid to be silent. In other cases, companies would pay politicians to secure government business.

But the Olympus scandal is unusual because it follows an era of aggressive government crackdown on bribery and suspicious business deals, said J. Mark Ramseyer, a professor of Japanese legal studies at Harvard Law School. “The activity seems to have gone down quite a bit,” Mr. Ramseyer said.

And yet, other experts cite the Olympus episode as evidence of still-frequent lapses of corporate governance in a country where truly independent board members are still rare, although there’s a requirement that one director or auditor be independent. And still in force, experts say, is a deep-rooted Japanese business culture in which personal relationships can sometimes seem to take priority over generally accepted accounting practices.

Ben Protess contributed reporting from New York.

This article has been revised to reflect the following correction:

Correction: October 27, 2011

An earlier version of this article mistakenly referred to the fees of $687 million that Olympus paid to advisory companies for its acquisition of Gyrus as multibillion-dollar fees.

Article source: http://www.nytimes.com/2011/10/27/business/global/olympus-chairman-resigns-amid-widening-scandal.html?partner=rss&emc=rss

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