Scandal-hit Olympus unveils new management

A customer checks a camera of Japanese optical giant Olympus at a Tokyo camera shop on October 27, 2011.

Story highlights

  • Olympus has unveiled an overhaul of its board and management after a massive fraud
  • Appointed a chairman linked to its biggest creditor despite concerns by foreign shareholders

Olympus has unveiled an overhaul of its board and management as the camera maker seeks to restore public trust following a damaging accounting scandal.

But it has appointed a chairman linked to its biggest creditor despite concerns by foreign shareholders over such a move.

Olympus is seeking to restore faith in its governance after it admitted last year that it had secretly moved more than Y100bn ($1.3bn) of securities-related investment losses off its books since the 1990s, then used acquisitions as cover to square the hidden accounts.

Japanese authorities arrested seven people in connection with the scandal this month, including a former chairman and outside financial advisers.

Shuichi Takayama, Olympus' caretaker president, plans to resign along with 14 other directors and three statutory auditors, after a civil investigation commissioned by the company issued a damning report in December accusing management of being "rotten at the core".

The Japanese camera maker said Yasuyuki Kimoto, a former director of Sumitomo Mitsui Bank, would become chairman, while Hiroyuki Sasa, an Olympus executive officer, would be promoted to president.

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Of the 15 directors and auditors on the new board, 11 will be from outside the company, compared with five previously. Independent directors include current and former executives of Mitsubishi UFJ bank, Kao, Asahi Kasei, Itochu and other blue-chip Japanese companies. One auditor hails from Nippon Life, an insurer that is also a major Olympus shareholder.

The appointments must be ratified at a shareholders' meeting scheduled for April.

In spite of the increase in the number of outsiders, the changes have worried foreign investors. They fear that bank-nominated executives lacking experience of managing a manufacturer would be unable to provide the strategic leadership Olympus needs.

Olympus has also said it is looking for ways to raise capital, a situation that often puts lenders and shareholders at odds. Banks are likely to prefer that Olympus issue stock rather than seek new loans, a method that would dilute the value of existing shareholders' stakes.

"There is a natural conflict of interest," said Michael Woodford, the former Olympus president whose revelations about suspicious acquisitions conducted under his predecessor touched of the scandal in October.

Mr Woodford told the Financial Times he was also concerned that Sumitomo Mitsui and other lenders might also try to dodge questions of responsibility regarding their own oversight of Olympus' financial reporting, or whether they helped fund any of its scandal-related acquisitions.

Foreigners collectively own about 20 per cent of the company, and could vote against the appointments at the April meeting -- though their influence is too small to block the proposed management changes on their own. Japanese institutional investors are expected mostly to vote in favour of the company's choices.

Josh Shores, a principal at Southeastern Asset Management, one of the largest foreign investors in Olympus, said he was "extremely disappointed" with the "clear creditor orientation" of the proposed board.

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