Fired Olympus CEO fires back, claims financial mismanagement
updated 10:00 pm EDT, Mon October 17, 2011
Turns over private audit info to UK authorities
Fired Olympus CEO Michael Woodford, the only non-Japanese director of the company, now says his firing on Friday was the result of an "emergency" board meeting following his intention to accusing the chairman and former CEO of financial improprieties, according to a report in The New York Times. Woodford accuses Olympus of overpaying for financial advice and acquisitions that later were written off, and says they destroyed $1.3 billion in shareholder value.
Backing up his claims, Woodford has submitted a dossier of financial evidence, including an audit conducted by PricewaterhouseCoopers, to back up his claims to the UK office of Serious Fraud. The report investigated Olympus' acquisition of a medical technology company and the amount paid to financial advisers as part of the deal, as well as a separate inquiry into Olympus' purchase of three companies that seemingly have no relevant connection to the electronics and camera maker, particularly regarding the high price paid for them.
Once Woodford had obtained the results of the independent report, which questioned the judgement of the transactions, their true worth and the way they were conducted -- and concluded that "improper conduct" couldn't be ruled out -- Woodford had called for the resignation of Olympus Chairman Tsuyoshi Kikukawa. Instead, Kikukawa called an emergency board meeting and fired Woodford. Though he had been at Olympus for over 30 years, Woodford had only been president of the company since April and had only obtained the CEO title last month.
In its official explanation for the firing, Kikukawa said Woodford, who is from the UK, ultimately could not understand Japanese management style or culture -- though that was also one of the reasons the company had promoted him in the first place, hoping he would make decisions and develop strategies that would be difficult for a Japanese executive to accomplish. Olympus had previously lavisted praise on Woodford for his turnaround of the company's European branch.
Kikukawa also criticized Woodford's managerial style, which Woodford himself has previously admitted can be "confrontational." The company, however, has not denied that the transactions pointed to in Woodford's audit, only saying that the company's acquisitions had been carried out with proper accounting and procedures. The board is said to be considering legal action against Woodford for disclosing company information to the news media.
Olympus' statement leaves open the question of why the company spent $773 million in 2008 on several small Japanese firms -- one that made face creams and another that made plastic bowls for use in microwave overs, along with a third firm. The investments were later written down to one-quarter of the price Olympus paid for them less than a year later.
When Olympus bought the British medical equipment firm Gyrus in 2008, it paid more than $2 billion in total -- but the account report by PricewaterhouseCoopers reveals that $687 million of that amount went instead to two financial advisers, who normally only receive one to two percent of the worth of a transaction of this nature, rather than the nearly one-third amount paid.
One of the advisers was a firm based in the Cayman Islands, well-known as a tax haven for corporations, and has since been removed from the local business registry for non-payment of license fees. The agreement to buy Gyrus was also entered into by Kikukawa and two other executives without the approval of Woodford or the board.
Woodford says he first learned about the transactions from a Japanese financial magazine raised questions about why Olympus would invest in companies completely unrelated to its core business. He then commissioned PricewaterhouseCoopers to examine the purchases. When he confronted Kikukawa with the findings, he was told that the transactions were "a domestic situation" that Woodford need not worry about.
Olympus' stock has dropped precipitously since Woodford's firing, losing well over 30 percent of its value. Because the Gyrus acquisition was of a company based in Britain, the Serious Fraud Office may opt to investigate and prosecute if wrongdoing is found to have occurred. [via The New York Times]
