Olympus admits to cover-up on decades of losses
By Chico Harlan,
TOKYO — Olympus hid at least two decades of losses by paying inflated fees to advisers, the company’s president said in the first admission of wrongdoing in a four-week boardroom scandal.
Company shares have lost more than 70 percent of their value since ousted chief executive Michael Woodford raised questions about a series of suspicious transactions that took place between 2006 and 2008. Tuesday, amid a third-party investigation, Olympus ended its defense of those deals. President Shuichi Takayama said at a news conference that unusually high takeover fees were used to cover up huge losses on security investments from the 1990s.
Though Takayama refused to provide details of the losses, the disclosure offered the latest insight into a company that last month fired its whistleblowing British CEO, citing cultural differences, and then spent weeks defending itself. Woodford said that Olympus paid far too much in advisory fees — about $687 million to a little-known firm in the Cayman Islands — in a $2.2 billion takeover of a medical instruments company, Gyrus, in 2008.
Bowing deeply and apologizing to shareholders, Takayama said he was “absolutely unaware” of the problems within his company until an independent six-person panel began its investigation last week. “We offer apologies,” Takayama said, “because facts different from what we previously said have turned up.”
Olympus on Tuesday fired Vice President Hisashi Mori, one of the three people it says was involved in the cover-up. It also suggested that auditor Hideo Yamada will step down. Chairman Tsuyoshi Kikukawa quit Oct. 26, only a day after he accused Woodford of deliberately trying to damage the company’s reputation.
The loss-concealing scandal could threaten Olympus’s listing on the Tokyo Stock Exchange. It also sets off wider fears about corporate oversight in Japan, where companies’ boards of directors are typically all-Japanese and members have lifelong backgrounds at the companies. Woodford was the 92-year-old firm’s first non-Japanese CEO, but he lasted just two weeks.
The camera and medical equipment maker will look deeper into its books for further accounting problems. Kikukawa said that many Japanese companies, after Tokyo’s economic bubble burst in the early 1990s, faced sudden revenue shortfalls and new pressure to make money. Olympus’s losses from that time were kept off the books and then covered up with at least four acquisitions, including that of Gyrus and three smaller Japanese start-up companies.
Those three companies — specializing in health foods, resource recycling and cookware manufacturing — had little to do with Olympus’s core businesses. But Olympus bought them for 73.4 billion yen, or $940 million at the current exchange rate.
After the news conference Tuesday, Olympus shares plunged 29 percent.