I mentioned in the last installment of this tragic tale (tragic or lurid, depending on your outlook) that a reader in the financial industry is acting as a behind-the-scenes source for me about the implications of the Olympus news from Japan. It turns out his original intuition about what was going on was dead-on correct: Olympus admitted in a press conference in Tokyo yesterday that it had been using inflated payments for acquisitions and related services to avoid having to report losses on securities investments on its books. It marks the first time the company has publicly admitted wrongdoing.
What's more, the illegal practices might have been going on since the 1990s. Olympus stock plunged again yesterday to the limits of what the Tokyo Stock Exchange allows, amid speculation that the Exchange could put the stock on supervisory watch or that the company could eventually be delisted.
The L.A. Times implied that this may be the worst case of accounting fraud in Japanese history.
Hisashi Mori, the Olympus Executive V.P. and Board member whose resignation Michael Woodford called for in his original memo, has already been dismissed for his part in the cover-up. Auditor Hideo Yamada has also resigned. Major stockholders have called for the ouster of the entire current Board (possibly with the exception of Woodford). The revelations might also have serious consequences for the company's outside auditors, if they are found negligent.
In Japan, the news of the scandal (which had been under-reported there) was finally the lead story on the evening news broadcast of national broadcaster NHK. The story took up half the broadcast. In a message posted on the Olympus dpreview forum, Ray Kinnane points out, from Saga-shi, Japan, that the reaction of the Japanese public to serious scandals on the part of Japanese companies is often to shun that company's products.
At the press conference, President Shuichi Takayama held the line on the firing of Michael Woodford, reiterating the familiar line that Woodford was fired for his management style rather than for his whistle-blowing.
Interestingly, the Wall Street Journal Live Blog indicates that Tuesday's press conference was the first one which the publication Facta, which broke the story originally, was allowed to attend, seeming to confirm rumors that Facta had been banned from earlier Olympus press conferences.
It's now possible that members of Olympus management could face criminal charges. It's also possible that Olympus Corporation in its current form will not be able to survive this scandal, but could eventually end up in bankruptcy proceedings or being sold off division by division—stockholders, an anonymous source tells me, seldom forgive such a catastrophic devaluation when it's the result of malfeasance by management.
The fate of the camera division would most likely depend on whether that division is profitable by itself. But whether it is or not can hardly be known at the present time, given that the company has just admitted to doctoring its own books.
Olympus is due to announce its earnings on November 14th.
For further reading:
The Wall Street Journal Live Blog has a blow-by-blow account of the press conference yesterday.
(Thanks to Ray Kinnane, Bryce Lee, Steve Rosenblum, James Bulloch, John Camp, Mike Chris Hagburg, and anonymous sources)
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Original contents copyright 2011 by Michael C. Johnston and/or the bylined author. All Rights Reserved.