Last updated: February 20, 2012 6:52 pm

Fears over bank’s role in Olympus shake-up

Olympus is set to nominate a new chairman and board members chosen by Sumitomo Mitsui Bank, its main lender and largest shareholder, a move that looks likely to reignite concerns about corporate governance at the scandal-hit company.

A so-called management reform committee, which was established by Olympus to oversee the appointment of a new chairman, president and board members, is expected to select its candidates this week.

A shareholder vote is scheduled for April.

Olympus’s foreign shareholders fear SMBC is putting pressure on the committee to name its own candidates as chairman and president rather than people best suited to lead the high-tech manufacturer.

“We are worried about a very bank-favoured, bank-dominated deal,” said Josh Shores, senior analyst and principal at Southeastern Asset Management, which owns a stake of about 5 per cent of Olympus.

Ethan Devine, a partner at Indus Capital Partners, which owns just under 5 per cent, said: “We get the strong impression from multiple sources that the MRC is being pressured to appoint a chairman with close ties to Olympus’s main lenders and to select an internal candidate for CEO.”

Olympus’s current board is set to resign after the company conceded it had reported false financial accounts to hide more than Y100bn in losses related to investments dating back to the 1990s.

Japanese authorities last week arrested seven people allegedly involved in the cover-up, including Olympus’s former chairman and two other board members.

Investors such as Indus and Southeastern are concerned that the interests of Sumitomo might not be aligned with all shareholders.

Jamie Allen, secretary-general of the Asian Corporate Governance Association, said: “There is potential for conflict between Sumitomo Mitsui as the company’s largest creditor and the interests of minority shareholders.”

Mr Devine added: “Given that Sony has close ties with Sumitomo Mitsui Bank, and since Sony wants to build up its medical devices business, we are concerned that board members affiliated with the Sumitomo group may not be impartial if Sony makes a formal offer.”

Sony has, over the years, appointed a number of SMBC executives to its board, including Mitsuaki Yahagi, a former deputy president of the bank who is on Sony’s board.

David Herro of Harris Associates said: “The board of directors should represent the interests of all shareholders, not just one.” Harris owns a 3.98 per cent stake in Olympus, according to Bloomberg data.

Shareholders are concerned that a bank-nominated executive with no experience managing a manufacturer would not be able to provide the strategic leadership Olympus needs.

Olympus said no decision had been made on candidates for its new board. Members of the committee declined to comment. SMBC could not be reached for comment.

Foreign shareholders, who collectively own about 20 per cent and could vote against the SMBC appointments at the April extraordinary meeting, have until the end of this week to decide whether to propose their own candidates for the board.

This article has been amended to reflect the fact that Sony is not part of the Sumitomo Group

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