Olympus-Sony deal shows Japan's old ways die hard
Sony Corp.'s plan to buy an 11% stake in embattled Olympus Corp. effectively marks the final chapter in one of Japan's biggest business scandals. It also shows how, in the end, the scandal actually did little to disturb Japan's cloistered corporate culture.
The Olympus saga—involving a complex scheme where executives allegedly concealed $1.5 billion in investment losses for 13 years—not only damaged the company's reputation and weakened its finances, but also raised questions about governance and transparency at Japanese corporations. During the last year, Olympus went through four chief executives—one of whom was subsequently arrested—and operated for several months under the management of executives it was suing for either participating in or failing to prevent the loss-hiding.
Yet Olympus has weathered the scandal largely in the old-fashioned Japanese way, drawing on support from key local lenders that also are shareholders, and enlisting help from a Japanese industrial partner, rather than undertaking the radical surgery for which many foreign investors clamored.
Olympus shares traded at about ¥2,400 ($30.8) on the eve of the dramatic ouster of former CEO Michael Woodford last October, and eventually bottomed out at about ¥485 in November 2011. Today they trade at around ¥1500.
"There's concern that people will say Japan has not changed," said Toshiaki Oguchi, a representative director at Governance for Owners LLP, adding that closed-door talks remain the norm for Olympus to make key strategic decisions, such as capital raising. The U.K.-based investment group, partially owned by pension funds, represents some Olympus shareholders.
The Olympus scandal shows the way in which so-called Japan Inc. still acts to close ranks around ailing companies.
Sharp Corp., 6753.TO 0.00%a flat-panel display maker facing an acute cash crunch while sitting on a mountain of debt, said Friday it secured a $4.6 billion syndicated loan arranged by its main lenders. Last week, a Japanese government official said that a government-backed investment fund is joining a team of domestic blue-chip firms to buy a majority stake in struggling chip maker Renesas Electronics Corp. 6723.TO -2.33%to stymie a bid from a U.S. investor.
But Olympus's capital tie-up with Sony, which will come through the sale of around ¥50 billion in new shares, has irked foreign investors more than the other government or bank-led bailouts, since Olympus has a dominant share in the global market for endoscopes (camera-equipped instruments that allow doctors to look inside the body), and is in much better shape than the other companies being rescued, some corporate-governance experts say.
Many foreign investors protested that Olympus didn't need a capital injection, which would dilute their shareholdings by nearly 13%, and called for new management and cost-cutting instead.
In a statement Friday, Olympus said the size of the dilution is "reasonable" since a tie-up with Sony will enhance its value. The companies are expected to reveal more details of the deal Monday.
"This capital-raising plan leaves an impression that existing shareholders are left out of the loop," said Mr. Oguchi of Governance for Owners.
To be sure, plenty of things have changed at Olympus post-scandal. The Japanese police have since arrested three former executives who allegedly contributed to the company's loss-hiding scheme, including former chairman Tsuyoshi Kikukawa. In a trial that started Sept. 25, the trio submitted guilty pleas and now face up to 10 years in prison and fines up to ¥10 million each.
Olympus has said it doesn't comment on former employees.
To address concerns over its governance, Olympus in April replaced its board with a new slate that includes many outsiders. Under the new management, Olympus has also outlined job cuts, the streamlining of manufacturing bases and sale of noncore assets.
Still, while foreign investors called for a management overhaul through external appointments, the company picked Hiroyuki Sasa, a little-known senior manager, as its new president, and a former executive of its main creditor bank as its chairman—exactly the kind of choices bemoaned by those who question Japan's ability to improve corporate governance.
Even after it had admitted to hiding losses, the company continued to battle former CEO Mr. Woodford, a Briton, who was abruptly fired last October after he raised flags over Olympus deals he thought suspicious. In January, Mr. Woodford, who had considered a proxy fight to retake the reins at Olympus, dropped that plan, citing a lack of support from key Japanese investors despite the scale of the scandal. He instead sued Olympus for unfair dismissal. They settled in May, with Olympus paying him roughly $15 million.
"The Olympus scandal showed the world how Japan works, or perhaps how it doesn't work," Mr. Woodford said this week. "Many people worry that there might be many Olympuses out there."
(Published by WSJ - September 30, 2012)