Olympus Scandal: Bye, Old Guard, Hello . . . Old Guard?

by Cesar Bacani, 31 October 2011

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topics:
Management Risk Management

tags:
Gyrus Group Michael Woodford Olympus Shuichi Takayama Tsuyoshi Kikukawa Yakuza

Better late than never.

When Shuichi Takayama (pictured) took over as President and CEO of Japan’s embattled Olympus Corporation on 26 October, an apologetic message was uploaded to the US$11-billion-a-year company’s website.

“We wish to make a profound apology for all of the distress and trouble caused due to the recent series of media reports and fall in the stock prices triggered by our recent change in President,” the new chief executive wrote.

“We shall provide updates in a timely manner through the Tokyo Stock Exchange’s disclosure network and our website,” he went on. “We sincerely hope to conclude this situation as quickly as possible to restore society’s trust in us and to bring reassurance to our customers, business partners, shareholders and employees.”

But Takayama, 61, also struck a defiant note. “The past acquisitions mentioned in the media were handled with the appropriate evaluation and procedures,” he insisted. “These transactions were in no way improper and we are setting up an external panel of experts to examine and report on this acquisitions activity.”

And with that, Olympus’s Old Guard laid out the outlines of how the embattled Japanese giant intends to rehabilitate its reputation and recover more than US$4 billion in stock market paper losses since the firing of its British CEO, Michael Woodford, on 14 October.

Takayama, Olympus's third president in 13 days, seems to have decided that the best course is to deny any malfeasance, blame Woodford and the media for the implosion in the company's stock price -- and wait out the controversy, which will surely blow over.

Sceptical markets

Can Takayama pull it off? It’s too early to say. But the initial auguries are not encouraging. The stock price surged the most in 30 years after long-serving chief Tsuyoshi Kikukawa, 71, who oversaw the controversial acquisitions, resigned on 26 October.

But the stock fell back again the next day and closed at 1,217 yen on 28 October – down 51% before Woodford’s sacking. The bond market also remains sceptical. Three-year credit-default swaps linked to Olympus’s US$6 billion in bonds and loans rose to 895 basis points on 27 October.

“That’s the most for a technology company in Asia and nine times the 98.5 average for an index of companies in the region,” reports Bloomberg. Olympus is facing higher financing costs at a time when its competitors can raise money much more cheaply, given Japan’s near-zero interest rates.

Too many uncertainties still hang around Olympus. Woodford, who suspects that organized crime (presumably Japan’s Yakuza) is somehow involved in the M&A deals, has gone to the FBI in the US after also furnishing Britain’s Serious Fraud Office with information. (Gyrus Group, which Olympus bought in 2008, has operations in Britain and the US.)

Kikukawa, who named himself president and CEO after firing Woodford, is still involved in the company. He remains a director along with Woodford, although the Englishman has not returned to Japan because he fears for his safety.

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