Tokyo press spellbound by Woodford

11/27/2011
By

Michael Woodford, ex-CEO of Olympus Corp., speaking to the press at Tokyo

Speaking before a standing room only crowd at the Foreign Correspondents’’ Club in Japan on Nov. 25, Michael Woodford, the 30-year veteran bottom-to-top success story at Olympus, held the audience spellbound as he explained his ouster from the company just a few weeks before.

Woodford, who is still a director of the company, arrived in Japan from London on Nov. 23 for a board meeting, press conferences and meetings with the regulators.

Woodford joined Olympus at the age of 21 when he responded to an advertisement for staff. In April 2011, he was appointed president and CEO of the Japanese company by former Chairman and President Tsuyoshi Kikukawa. Kikukawa said there were so many things wrong that needed to be put right and Woodford was the man to do it. On Oct. 14, Woodford was fired by Kikukawa.

Woodford said that the “how what and who” of the company’s losses were still unknown. Olympus made $400 million last year, but spent over $1.5 billion on acquisitions and related fees.

Woodford’s story unfolds on July 29, 2011
After I returned from an overseas trip,” he said, “the atmosphere towards me in the (Tokyo) office was off.”

The reason was that his colleagues knew about the cover-up of the company’s losses, but Kikukawa had told them not to show anything to Woodford.

The Japanese magazine Factiva had exposed the scandal in July. Kikukawa told Woodford the piece was mostly true. Executive Vice President Hisashi Mori (now resigned) said that he was loyal to Kikukawa and refused to answer Woodford’s questions.

“The deals I questioned were made for small companies with no turnover,” he said. “For example, a face cream company, a company that makes microwaveable plastic plates and a recycling company.”

On Sept. 23, Woodford wrote a letter to Mori, copied to board members about his concerns about various transactions (acquisitions). Mori replied that it was covered in a 2009 independent review. Woodford replied that was unsatisfactory. After he had written three letters, Kikukawa stepped in on the discussions. From that point on, Woodford copied Ernst and Young and board on all letters he wrote.

Then he called for Kikukawa and Mori to resign.

Woodford speaking at the Foreign Correspondents' Club Japan (FCCJ) in Tokyo Photo: Joe Peters

Investigation and dismissal
Woodford then commissioned PwC to do an independent review of the $687 million transaction fees paid into a Cayman Islands account when Olympus acquired a UK-based medical instruments company for $2.2 billion.

Prior to being ousted, Woodford had plans to hire a new head of the medical division and a few other positions from within the United States to help bring down the cost structure in Japan.

On Oct. 14, the company called for an emergency board meeting to discuss compliance issues. Kikukawa showed up 7 minutes after the scheduled start time then went directly to the podium with a script in hand. Reading from the script he said the meeting was cancelled. However, he also said there was an agenda and that the first item was to call for the dismissal of Woodford. He also stated that Woodford was not allowed to speak since he had a vested interest.

Kikukawa then called for a show of hands approving the dismissal. The board unanimously agreed with Kikukawa’s proposal. The second resolution stated that Woodford would lose all chairmanship positions around the world and that Mori would take over. The board immediately backed this, too.

Woodford was then given a short time to leave the building, but prior to leaving he was ordered to turn over his company mobile phone and the keys to his apartment. He was also told that he could take a limousine bus to the airport because he no longer had use of a company car and driver.

Woodford said that as he left the building he was actually worried for his own safety and security. After leaving home he contacted a journalist (Jonathan Sobel of the Financial Times) and turned over a file. From there he headed for Haneda where he caught a flight to Hong Kong.

As he got off the plane in Hong Kong he walked past a news vendor’s stand and saw that the story had already broken. Woodford remarked, “Life since has been like a John Grisham novel.”

Additional points made by Woodford in response to journalists’ questions.
*If elected I would run the company. The staff would welcome me back.
*I spent over 40% of my time in Japan, rotating between Japan, New York and Hamburg.
*There is no definitive evidence at this point that organized crime is involved.
* The two auditing firms involved need to answer questions of due diligence. Olympus must carry out a forensic exam of all transactions of the Kikukawa Era and prior to that time too.
* I lost respect for the new Olympus President Shucihi Takayama when he said the purchases and payments were appropriate.
* The people who fired me were in fear of the illegal acts being discovered.
* Olympus has taken the company to its knees. They wrecked the company by siphoning off huge sums. Directors know they have to leave to strengthen the company whether I come back or there is some other new president. Poor leadership is what has gone wrong.
*While running Olympus’ European businesses I reported wrong doing twice. Olympus is the second most indebted company in Japan. Kikukawa needed someone to overcome that. He felt that I could do the turn around.
* Olympus needs to shed itself of non-core businesses. Otherwise, there is no need to restructure.
*Olympus is an extreme case. Japanese companies need to appoint non-executive directors who have Directors and Offices responsibility and liability. Cross shareholding creates conflict situations. Japan needs a vibrant economy. There are many good companies in Japan that are run poorly.
* It would be wrong to delist the company. The priority is to get accounts signed off by December 14 to avoid delisting. The board meeting was constructive and I feel encouraged after yesterday’s meeting with the authorities.
*Olympus’ strength is R&D engineering and manufacturing. The weakness is on the corporate side. The reason I’m here, doing this, is because of the people.

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