January 10, 2012
Olympus Executives Sued For $1.7B Accounting Scandal
In the most recent development in the now infamous accounting scandal involving Japanese camera maker Olympus Corp., company shareholders will reportedly sue the president Shuichi Takayama along with 18 other high-ranking executives for some $47 million in compensation.
According to an official announcement made Tuesday, all of the firm´s board members involved in the lawsuit would be resigning in March or April, leaving the company largely without leadership as it simultaneously pushes forward with lawsuits against the former directors while trying to regain the market´s confidence.
In a society in which the concept of honor still carries much cultural currency, analysts say that the condemned executives will likely have a very difficult time managing the day-to-day affairs of the company in their final months, making Olympus something of a sitting-duck for competitors looking to initiate a takeover.
“Essentially, everyone feels like they are on death row,” Nicholas Smith of the Japanese equity strategy at CLSA in Tokyo told Yoko Kubota and Linda Sieg of Reuters. “It does seem extremely strange to have the death row cell inside the company.”
“Having nobody at the helm makes it easier for a takeover,” he added.
The company´s shares jumped 28 percent following the announcement today, indicating that many investors believe the management purge will also prove a long-term boon for the company and help it to avoid a mortifying removal from the Tokyo Stock Exchange.
Since the scandal first began to surface last October, Olympus stocks have fallen by almost fifty percent.
“The plan is for the current board members who were found responsible and are subject to lawsuits to complete passing on their roles to avoid any impact on business implementation, and all resign at an extraordinary shareholders' meeting that is set to be held in March or April,” Olympus said in a statement.
Of Olympus´ eleven corporate directors, six are being sued, as are five of its eight internal directors and one of its three external directors.
The first cracks in the company´s clean financial faÃ§ade began to show last fall after one of its English CEOs, Michael Woodford, was fired for questioning several shady acquisitions.
A third-party panel of investigators uncovered evidence last month that several of the company´s top leaders had been involved in an illegal ruse to hide losses from investors that goes back as long as 13-year.
Olympus will attempt to reclaim some $47 million in compensation for the accounting fudging.
Company President Takayama and most others have thus far declined to comment publicly on the affair.
The company´s decision to sue for damages came after a report by the investigative panel that implicated 19 current and former Olympus executives in the protracted scandal, each bearing varying measures of responsibility in the financial wrongdoings.
“Considering that the truth would have remained in the dark if Woodford had not raised doubts, we must have deep misgivings about the closed nature of Olympus' management to date and the weakness of its corporate governance, which allowed this situation,” stated the report issued by the independent panel´s on Tuesday.
While Mr. Woodford has commented that he no longer has interest in being restated to his position, he nonetheless repeated his belief that all of the company´s directors should be let go.
“If corporate governance is to mean anything in Japan and for those who care about the future of Olympus, the only way forward is an entirely new Board of Directors untainted by the past scandal,” he told Reuters in an email on Tuesday.
Regional analysts say that the revelation of the $1.7 billion dollar accounting fraud scandal has highlighted the general culture of weak corporate governance in Japan.
While the current lawsuits involve only civil courts, the company´s executives are also being investigated by Japanese police, prosecutors and regulators, an investigation that will likely lead to criminal charges being brought against individual executives.
Although the Tokyo Stock Exchange reports that it has not reached a final decision, citing unnamed sources Reuters reported on Monday that the exchange would probably keep Olympus on a “security on alert” status for the immediate future, something like probation which would allow the company to keep trading as long as its “internal controls” demonstrated steady improvement.
According to Ryosuke Okazaki, a director at ITC Investment Partners Corp., this news has been welcomed by investors.
“Investors who have been holding short positions are buying them back heavily. Also investors may be allocating funds into Olympus due to expectations the company will have a new governance,” Okazaki told Reuters.
“As Olympus shares are likely to remain listed, investors are eyeing the company as an M&A target. In this kind of mood, the shares are being bought back heavily,” he added.
Overleveraged and in desperate need of capital, Olympus has become that object of industry rumors that companies like Fujifilm, Hoya Corp., Panasonic or Sony may be scouting for a potential buyout or partnership opportunity.
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