The New York Times
Michael C. Woodford had been an audacious challenger to the staid ways of corporate Japan: a British chief executive, fired after exposing extensive fraud at Olympus – one of Japan’s vaunted blue-chip companies – who took his evidence public and initiated a proxy fight to win back his job.
But Woodford, the ousted chief executive of Olympus, ended that bid Friday, saying he had been unable to garner the support of the company’s Japanese institutional investors and creditors.
“Despite one of the biggest scandals in history, the Japanese institutional shareholders have not spoken one single word of criticism, in complete and utter contrast with overseas shareholders, who were demanding accountability,” Woodford said Friday. “I’m taking the plane and saying goodbye to Japan as a businessman.”
For the Japanese business community, it could prove a damaging conclusion to a scandal that had come to be seen as a test of just how far the country would go to police white-collar crime at Olympus, a maker of cameras and medical endoscopes that is one of the country’s vaunted blue-chip companies.
A perceived reticence on the part of financial regulators to pursue the scandal, as well as the tacit endorsement of the Olympus board by friendly bankers and Japanese institutional shareholders, has reinforced views among foreign investors that entrenched executives in Japan are still able to thwart any attempts at change. The company’s shares have also avoided – for now, at least – a delisting from the Tokyo Stock Exchange, a move that would have decimated shareholder value.
Woodford said he had instructed his lawyers to prepare to sue Olympus for unfair dismissal. The Olympus board has said that Woodford was let go because it did not like his aggressive Western management style.
“I got fired and lost my job for doing the right thing, and they’re still there,” Woodford said.
He said the strain that his long struggle was putting on his family in England, especially his wife, was also a big consideration in his decision to abandon the fight.
Still, the company’s stock market value has dropped by half since Woodford was fired in mid-October. Its shareholders’ equity has also been exposed as dangerously low, at just 42.9 billion yen, or $556 million, at the end of September, casting a shadow over the company’s long-term viability. Many foreign investors have said the current management is tainted and should leave, for the sake of robust corporate governance.
A U.S. fund manager, Southeastern Asset Management, which holds about 5 percent of Olympus’ shares and has been an outspoken critic of the company, previously warned that any attempts by the incumbent board to protect its own interests “would deal a severe blow to the reputation of Japan’s capital markets and corporate governance.”
Representatives of the fund manager were not immediately available for comment.
Top Olympus executives acknowledged in November that the company had indeed conducted an effort spanning decades to cover up $1.7 billion in investment losses in a global scheme that has led to investigations by the authorities in Japan, the United States and Britain.
Investigators are looking into what they say is a scheme that began in the 1990s to hide losses by selling bad assets to funds and other entities and later settling those losses through payments masked as acquisition fees.
Three executives implicated by an independent panel have left Olympus over the scandal, but the rest of the board, led by the current chief executive, Shuichi Takayama – a former board member who took helm of the company in November – has been scrambling to retain control. Olympus has refused to reinstate Woodford or to offer him an apology.
Instead, Olympus is said to be looking to raise capital from domestic investors, which would dilute the influence of overseas shareholders, making fundamental changes less likely.
Last month, the Nikkei business daily reported that Olympus might issue about 100 billion yen in new preferred shares, and that Japanese companies like Fujifilm or Sony might be possible investors. Those two companies, however, have denied that any such investment is in the works.
Backing the board have been Olympus’ biggest lenders, including Sumitomo Mitsui Financial Group, which also holds an equity stake in the company. Woodford said the bank had refused to meet with him. Sumitomo Mitsui has refused to comment.
Japan’s system of cross-shareholdings between companies with business ties – like companies and their main banks – has meant that top executives at Japanese companies have faced little pressure from investors to improve performance or bolster corporate governance.
Trying to beat that system, Woodford had rallied support among Olympus’ foreign shareholders, setting up a proxy fight with the board. He also lined up a fresh slate of directors, made up of people who he said were “impressive” members of the Japanese business community.
The plan, he said, was to present those candidates at a shareholder meeting that Takayama has promised to hold in March or April.
But Woodford said Friday that he had become convinced that even if he had won the proxy fight and returned to the company, the schism between Japanese and foreign shareholders would make any real turnaround impossible.
“It wouldn’t be healthy,” he said. “It was that realization that made me stop.”
The New York Times