A 200-page report on the biggest corporate scandal Japan has ever faced, Olympus’ billion dollar loss-hiding, has been published, and it really is quite messy.
The report, writes the Wall Street Journal, says Olympus’ management was “rotten” and that “contaminated other parts around it”. The scandal, unearthed by ex-CEO Michael Woodford who was thanked with a sacking, has seen Olympus’ shares plummet and risked having the company delisted from the Tokyo Stock Exchange.
Rather than face up to the dire situation the company was in, it allegedly created bogus funds around the world to buy off billions and billions of yen in bad assets. Later it tried to write everything off by buying start-ups at a hugely inflated price which subsequently vanished.
In the report, execs like Hisashi Mori, who was an executive vice president and his boss Hideo Yamada led the plans, along with a few others, to hide losses and make them disappear through made-up acquisition prices.
The WSJ says, as Olympus faced a financial downturn in the mid-80s when the US dollar was devalued following the Plaza Accord, then-president Toshiro Shimoyama decided the best thing to do would be to plough money into other companies as part of its core business strategy. Many of the deals went sour and, coupled with other factors like the rise of the yen, it wasn’t looking good for Olympus. Mori and Yamada tried to fix it by gambling with derivatives and structured bonds.
Ex prez Toshiro Shimoyama denies any wrongdoing and used the useful line: he can’t really remember, said the WSJ.
Shimoyama left the company with the losses and was followed by Masatoshi Kishimoto as president, who, the report claims, didn’t do enough to fix the mess and left it up to Mori and Yamada to keep doing what they were doing. Kishimoto’s replacement, Tsuyoshi Kikukawa, was from Finance and well aware of Olympus’ situation.
Things really took a turn for the worse when changes to Japan’s accounting rules meant Olympus would have to go public with the securities losses – and the company had over $1 billion of that. It was then, the report says, that Mori and Yamada approached two brokers, Akio Nakagawa and Hajime Sagawa, to hatch a cunning plan.
It was as easy as moving Olympus’ dodgy assets away from the company and over to others that weren’t at all connected – avoiding having to disclose any at all on the official books. Nakagawa and Sagawa started a set up fund in the Cayman Islands called Central Forest Corp. This bogus company was to buy off Olympus’ assets. To fund the transactions, Mori and Yamada allegedly got Olympus to put ¥21 billion in Japanese government bonds into an LGT Bank account. The bank was then asked to give Central Forest an ¥18 billion loan.
To finance the whole operation, Mori allegedly lied to LGT bank and explained the whole bizarre situation away – claming Olympus was on a shopping trip to make a string of secret buys in Europe. Altogether, Olympus managed to shift ¥65 billion from Olympus in Europe.
This scheme was, by and large, repeated in Singapore using accounts through Commerzbank AG and Societe Generale SA to move ¥60 billion away from its books, though the report doesn’t accuse the banks of being at fault.
Later, Olympus started another investment fund in Japan with an ex Nomura broker. That, too, was used to buy bad assets. Presidents Kishimoto and Kikukawa were told about the schemes, the report says.
Olympus did get found out once. Auditor KPMG AZSA spotted some mysterious figures in the books and Olympus owned up to the loss-hiding – but it only admitted to one fund.
Eventually the execs realised the decades-long plot was doomed and tried to write the whole lot off. They used three start-ups, a waste recycler called Altis, a cosmetics company called Humalabo and a microwave container company called News Chef. Olympus bought them all for ¥73.2 billion before getting rid of them for good.
The report says Olympus then used that money to repay loans from LGT and shut down its dodgy European operations. Later, it offset the funds in Singapore, according to the report, by using $687 million it got from buying UK medi-tech company Gyrus Group PLC, which went through as recently as March 2010.
According to the report, there was a bizarre pervasive atmosphere at Olympus which discouraged anything other than yes-men: “The head of the company ran an autocratic regime over a long period, generating an internal atmosphere in which people hesitated to disagree. Among executives there was a rampant tendency to treat the company like their private possession. There was little awareness of loyalty to shareholders.”
Certainly that still rang true when current president Shuichi Takayama said of ex-CEO Woodford’s findings: “If this secret information hadn’t been leaked there would have been no change in our corporate value”.
The accused orchestrators Mori and Yamada held onto their positions at the troubled cameramaker until the scandal was blown wide open. Olympus is now under a great deal of pressure to replace the entire board. Ex-CEO Woodford claims a takeover is out of the question because it isn’t normal business practice in Japan, but he does say Olympus needs a shareholders meeting ASAP and a different set of directors, as picked by the managers, urgently.
Olympus is still on deadline for 14 December to post its most recent earnings or it risks being delisted.