Kikukawa, who resigned as chairman after the scandal broke in October, ex-board member Hisashi Mori and former auditor Hideo Yamada have been arrested on suspicion of violating the Financial Instruments and Exchange Law. In total, seven have been arrested in connection with the scandal so far: three former executives and four others, including ex-bankers.
It’s the latest twist in the story of one of the biggest corporate scandals to rock Japan; and no one’s certain how it will end or how well the company will recover.
The scandal has highlighted weaknesses in Japan’s corporate culture: ‘Japan comes over as a financial banana republic’, Michael Woodford, the British former CEO who blew the whistle on the company, said at a news conference this morning.
The Japanese camera and medical equipment maker has been struggling to maintain its reputation in recent months, after a 13-year scheme covering up huge losses was exposed in October 2011.
Woodford, who had taken over the company’s presidency only that year, questioned huge payments for financial advice and a number of unprofitable acquisitions. In particular, he was concerned about a payment of $687m in transaction fees to two firms (one based in the Cayman Islands) relating to the acquisition of UK medical equipment maker, Gyrus. The two companies were later dissolved. He also questioned the $773m paid for the acquisitions of three companies unrelated to Olympus’s camera and medical specialities which sent Olympus’s finances plummeting into the red.
For his troubles, Woodford was sacked from the company. Olympus at first denied any wrongdoing but later admitted it hid 117.7bn-yen ($1.5 billion) in investment losses dating back to the 1990s.
In the weeks after the scandal was exposed, Olympus’ share price tumbled 80%. On Thursday, its shares closed in Asia at 1,273 yen, following the news of the arrests. In the few months before the accounting cover-up was exposed, its shares peaked at more than 2,750 yen. That means Olympus has lost more than half of its value in a year.
Meanwhile, legal battles are ongoing. Nineteen former and current executives are being sued – bizarrely, by the company itself. Woodford is also suing the company for wrongful dismissal. He has his first employment tribunal appointment in March in Stratford, East London. With the claim expected to run into millions of pounds, it's not quite your average East London employment dispute.
- For the full story behind Michael Woodford’s sacking see the March edition of MT, which is out in two weeks’ time.