Olympus Scandal: The End Game Begins

by Cesar Bacani, 08 November 2011

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fraud M&A Olympus scandal

In the dramatic arts, the end of the play is known as the dénouement (pronounced /deɪnuː'mɑ̃ː/) – the conclusion of the narrative, when conflicts are resolved and the tension and anxiety felt by the playgoer are put to rest.

We can now date the dénouement of the Olympus saga as starting on 8 November, when Japan’s camera and medical equipment giant (fiscal 2010 revenues: US$11 billion) sent a dramatic notice to the Tokyo Stock Exchange. The company has been under fire from all quarters, including Prime Minister Yoshihiko Noda, for paying US$687 million in advisory fees in its 2008 acquisition of Gyrus Group and US$773 million for three domestic enterprises in 2006-08.

“It has been discovered that the Company had been engaging in deferring the posting of losses on investment securities, etc. since around the 1990s,” Olympus disclosed.

“Both the fees paid to advisors and funds used to buy back preferred stock in relation to the Gyrus Group PLC acquisition, as well as the purchase funds for the acquisition of the three domestic new business companies . . . had been, by means such as going through multiple funds, used in part to resolve unrealised losses on investment securities, etc. by such deferral in the posting of these losses.”

In another announcement on the same day, Olympus said its board had dismissed Hisashi Mori as Director and Executive Vice President, and added that Hideo Yamada has offered to resign as Standing Corporate Auditor.

Olympus President Shuichi Takayama added more details in a press conference in Tokyo. He said that former president and CEO Tsuyoshi Kikukawa, who remains company chairman (and who apparently still comes to the office every day), was also part of the cover-up. Takayama said the company may sue the three men if recommended by the independent panel of investigators it formed last week, which had uncovered the wrongdoing.

“It is a fact that we carried out inappropriate accounting,” Takayama admitted, raising questions about the work done by the company’s finance function and that of its external auditors. Takayama said he and other board directors bear some responsibility, but said he does not feel he should resign.

Still in Denial

The press conference, as live blogged by the Wall Street Journal, had a surreal quality to it. An Olympus spokesman asked the reporters not to cross a red line in front of the table where Takayama was to sit “for safety purposes.” Wrote the blogger: “It wasn’t clear whose safety he was concerned about.”

When Takayama, who was named president only on 26 October, finally entered the room, his hair looked “disheveled, not as slicked back as it was two weeks ago when he took over,” the blogger reported. In a quiet voice, he read a bit shakily from a piece of paper and bowed for about two seconds.

The journalists were relentless. One reporter from Facta, the business magazine that first wrote about the suspicious business transactions, prefaced a question by saying pointedly: “Thank you for allowing us into the press conference for the first time.”

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