Olympus board to commit harakiri

The camera-makers's board is to resign en masse this February to boost Olympus' share price. Tales of alleged fraud continue to develop.

by Rebecca Burn-Callander

The news follows three months of scandal for the Japanese firm. Back in October, former chief executive Michael Woodford blew the whistle on accounting malpractice. An independent panel was duly despatched to investigate and dug up a $1.7bn hole in Olympus’ finances alongside evidence of high-level wrongdoing among up to 70 of Olympus’ directors. ‘The core part of management was rotten and the parts around it were also contaminated by the rot,’ was the prognosis.

There has been much speculation about the level of corruption at the firm. Suggestions of links with a criminal underworld (the infamous yakuzas) have been mostly debunked, but the scale of the figure-fudging is still in the process of being resolved.

The central scandal surrounds the giant cover-up which used funds from various mergers and acquisitions to plug holes in the balance sheet. Olympus is a complex company – its medical equipment arm boasts a 70% market share and is highly profitable while its investment banking operation now shows a decade of losses. The question is, how long has this ‘rot’ been eating away at the company?

Here are the facts at hand. KPMG audited the firm until 2009 but was let go when it unearthed accountancy issues on the acquisitions side. So, that’s three years. But the pattern of wrongdoing could stretch back much further, reports the panel. Former executive VP Hisashi Mori and ex-internal auditor Hideo Yamada are both in the frame for concocting a cover-up as early as 1998 when Olympus had suffered huge losses as a result of a Japanese stock market crash. Further losses on securities investments were kept off the books under president Masatoshi Kishimoto and then ex-chairman Tsuyoshi Kikukawa, who resigned in October. It’s corporate corruption at its most entrenched.

These revelations only came to light this year because Woodford, the first ever non-Japanese chief of Olympus, commissioned accountants PricewaterhouseCoopers to look into a few inaccuracies on the balance sheet. When his fears of misreporting were confirmed, he took his findings to the board and demanded the resignation of the parties involved. He found himself sacked instead.

Olympus, subject to the world’s full scrutiny for the first time, has not faired well in the past quarter. Its share price has halved, chairman Shuichi Takayama has had to issue a public apology and Olympus is now pipped to miss its December 14 deadline for filing accounts to the Tokyo Stock Exchange. The consequences of doing so are severe: Olympus will be slung off the Tosho.

Takayama and the other members of the board have now announced that they will use the next available shareholder meeting, scheduled in two months’ time, to resign in the hope that its stock will recover. And Woodford is poised to pull off a coup. ‘Olympus isn't rotten to the core, the board is,’ he says. ‘I would like nothing more than to return.’

If Woodford is successful in his takeover, he could just be the most successful corporate whistleblower in history.

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