Olympus, the maker of digital cameras and medical equipment, admitted on Tuesday that it hid investment losses occurring in the 1990s and subsequently made attempts to conceal them with acquisition payments made between 2006 and 2008. For weeks, Olympus denied the claims made by the 51-year-old former CEO Woodford of improper accounting and uncertain deal making.
The Nikkei newspaper said the concealment amount could have totaled more than 130 billion yen ($1.68 billion) at its height.
Woodford was ousted in October after only two weeks as CEO. He had claimed that Olympus was making questionable payments during past acquisitions and called authorities from Britain and Japan to investigate these payments. The FBI later joined in the investigation.
As an example, a $687 million fee was paid to advisors during the Gyrus acquisition in 2008. This was questionable because the fee amounted to approximately one-third of the value of the acquisition when these fees are typically only 1 percent. Gyrus is one of the leading suppliers of medical visualization and energy systems.
“What Olympus needs now is a thorough cleanup, and we believe Michael Woodford is the best man for the job,” said Elaine Morrison, a partner at U.K. Baillie Gifford & Co., an investment firm which holds a 4 percent stake in Olympus. She added that she hopes all the directors and employees involved in the fraud will be fired. Harris Associates LP, an investment company which also holds a 4 percent stake in Olympus, agreed.
According to Koji Miyata, age 70 and former director of Olympus, “Olympus needs to be totally revamped and Michael Woodford has the credibility and trustworthiness that is definitely lacking at Olympus.” He also noted that Woodford had worked at the company for 30 plus years.
In addition, a group of Olympus employees have written a letter requesting Woodford’s return as CEO, Miyata told Mainichi newspaper.
However, reinstating Woodford as CEO would be difficult, if not impossible. According to Olympus, Woodford was ousted because of his management style and absence of visits to the company headquarters in Japan. The company stated that he would not return.
“Woodford is the guy who brought down the company,” said Dan Herlihy, a long-time independent financial analyst in Tokyo. “The powers that be would not want the same guy to be in power.”
In order to reinstate Woodford, shareholders would need to vote out current directors at June’s general meeting or at an extraordinary shareholders’ meeting. Shareholders representing at least 3 percent of the company’s voting rights held over the last six months could call the meeting.
“The same thing happened to Enron. I call it the Japanese Enron,” Herlihy said. “The initial reaction to the allegations was that the company was stealing the money. But it turned out to be creative accounting to hide their losses.”
Herlihy stated that Olympus believed they would destroy the company if they reported their losses in the 90s.
“They were thinking that in the next few years they would be able to remove the losses from the accounts,” Herlihy said. “They were changing their accounts to cover the losses. They were not funneling money out of the company into their own pockets. They believed if they reported the losses the company would crash.”