Olympus Scandal: The Forensic Investigator's View

by Cesar Bacani, 02 December 2011

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On 1 December, ousted Olympus CEO Michael Woodford dropped a corporate bomb. He suddenly resigned as board director of the troubled Japanese camera-and-medical-equipment giant.

But he is not walking away, said the company’s first foreign CEO, who was fired two months ago after questioning the inflated valuations of several M&A deals and excessive associated fees. Woodford said he was working on an “alternative plan” for Olympus, adding that he gave up his board seat so he could be free to approach potential directors and develop plans to revive the company.

What’s really going on? Tadashi Kageyama (pictured), Head of Asia including Japan at forensic investigations firm Kroll, gives his take in a conversation with CFO Innovation’s Cesar Bacani. Excerpts:

Michael Woodford has resigned from the Olympus board. What do you think is his end game? To me, it seems like this is a way for him to pressure all the directors to resign and for an extraordinary general meeting to be called.

I think you’re reading it the right way. It’s quite clear that Mr. Woodford is forcing to have all the board of directors resign and perhaps the second-tier management to also probably step down. That would be the only way to probably get the company surviving.

He’s also suggesting that he’s going to file a lawsuit against the company for unlawful termination.

President Shuichi Takayama has announced that he is forming two special task force teams, one on corporate governance and compliance, and the other on a revival plan for a “New Olympus.” It seems like he is taking a leadership role, in effect saying, ‘I can do this. You don’t need Woodford.’

It’s quite clear that the current CEO and Woodford are fighting over the CEO position, yes.

But from the point of view of the shareholders, does it matter whether it’s Takayama or Woodford, so long as they are sure that the company will survive and thrive?

I don’t know about that. There are different stakeholders here. The Olympus case is unique because [a significant proportion] of shareholders are foreign institutional investors. I sense that the foreign investors are probably in line with Mr. Woodford, wanting to change the management group, and having either Mr. Woodford or new management to manage the company.

I think the Japanese institutional investors, they probably have a different view. They don’t really care as long as the company is not going to be delisted or going to be chopped into pieces.

I think everyone is waiting for the December 14 deadline for Olympus to publish its mid-term financial report. Technically if they don’t do that, they’ll be subject to delisting.

I say ‘subject to’ because there could be political pressure for the Tokyo Stock Exchange (TSE) not to delist them.

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