Panel urges legal action in damning report on Japan’s Olympus
TOKYO |
TOKYO (Reuters) – An independent panel issued a damning report into the $1.7 billion accounting scandal at Japan’s Olympus Corp, urging legal action against executives behind the cover-up and the replacement of others who knew about it.
“The core part of management was rotten and the parts around it were also contaminated by the rot,” the report, commissioned by the company, said.
“In the worst possible sense, the situation was that of the tribal culture of the Japanese salary man,” it added, referring to a culture of absolute loyalty to the company.
The panel criticised the external auditors of the once venerable maker of cameras and medical equipment.
But it found no link with organised crime, an outcome that may help Olympus survive a scandal that ranks as one of Japan’s worst.
Olympus has lost about half its market value since its sacked CEO, Englishman Michael Woodford, went public with concerns over murky accounting and some expensive and questionable acquisitions.
Speculation of “yakuza” gangster involvement had quickly surfaced, given they have a long history of trying to extort money from companies by threatening to expose their secrets, and because Woodford had fled Japan after his sacking, citing safety fears.
But the panel found no such link. Instead, it blamed two former executives for cooking the books over 13 years to flatter its financial performance and also said it had found no evidence to suggest any executives had personally gained from the scam.
“A factor in the longevity of the cover-up was the existence of external players who advised, helped and assisted in the concealment while knowing full well that such accounting practices were illegal,” the report said.
“Olympus must take this opportunity to extract the tumour that centres around its former management group and literally aim to renew its body and soul.”
For Olympus scandal graphic, click link.reuters.com/pud35s
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The panel said former executive vice president Hisashi Mori and ex-internal auditor Hideo Yamada had crafted a scheme as long ago as 1998, along with several investment bankers, to hide investment losses suffered earlier in that decade as Japan’s stock market crashed.
It was also critical of Olympus’ auditors over the years under investigation, KPMG AZSA and Ernst Young ShinNihon, and said the concealment of losses amounted to 134.8 billion yen at its peak.
The panel recommended wholesale changes to the boardroom, in a suggestion likely to support former chief executive Woodford’s recently launched campaign to retake his old job and take control of the board at the head of a new team of directors.
Olympus shares had jumped as much as 15 percent earlier on Tuesday, extending a three-week rally fuelled by growing hopes that the stock would not be delisted.
The panel’s wording is much tougher than expected but its main findings so far represent no major new surprise for investors, though some doubts exist about its ability to get to the bottom of such a complex and murky affair, which involves numerous, obscure counterparties and investment firms.
The panel has limited powers of investigation and was hired by the same board that sacked Woodford, who blew the whistle on the scandal immediately after he was fired as CEO in October.
“I would have thought they didn’t have the expertise to probe that (involvement by organised crime),” said Jamie Allen, secretary-general of the Asian Corporate Governance Association, whose members include institutional investors that collectively manage assets of more than $10 trillion.
“That’s really a job for the police. So even if they say there’s no evidence, obviously I don’t think that’s going to satisfy everybody because they’ll want to know what the police come up with.”
Olympus remains under joint investigation by Japanese police, prosecutors and the markets regulator, though it is not clear when these official investigations will wind up.
(Additional reporting by Mari Saito in Tokyo; Writing by Mark Bendeich; Editing by Richard Pullin and Ian Geoghegan)
Article source: http://feeds.reuters.com/~r/reuters/INbusinessNews/~3/aZgBJxAme_I/olympus-idINDEE7B504120111206
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