In the wake of the accounting scandal at Olympus, the shrinking group of executives still running the Japanese company has commissioned a bewildering array of outside committees to look into the affair. But if they were hoping for mercy from their hand-picked experts, they have been disappointed so far.
Verdicts delivered by the two panels to submit their findings have been harsh. The first, in December, dismissed the camera-maker’s directors as “yes men”. The second, whose conclusions were published on Tuesday, took that reproach a step further: it said half a dozen serving board members, including the caretaker president, bore some responsibility and should be sued.
That assessment, by a trio of lawyers, has produced what is perhaps the most bizarre twist in an already surprise-filled saga – that of Olympus taking its own bosses to court. The company said on Tuesday it was seeking damages of Y3.61bn ($47m) from 19 past and present executives. The president, Shuichi Takayama, and three of his predecessors were among those targeted.
The unusual situation was made possible by a quirk of Japanese corporate law that grants strong powers to a company’s statutory auditors – non-voting adjuncts to corporate boards, unrelated to outside financial auditors, whose job is to provide legal and ethical oversight. Legal experts said that while statutory auditors have the right to bring suits against executives, it was extremely unusual for them to do so.
“This is a very rare case even in Japan,” said Masakazu Iwakura, a lawyer and professor at Hitotsubashi University Graduate School of Law.
Mr Takayama and the other executives named in the suit have not spoken publicly on the matter and Olympus has not made them available. Although the suit was filed on the company’s behalf, the division between auditors and executives means they were not formally involved in the decision.
Still, the panel’s report and the lawsuit have deepened scepticism over whether Mr Takayama and his colleagues can and should continue to run the company, even in the short term. Four other executives have lost their jobs over the accounting scandal, and most remaining board members are expected to leave following an extraordinary shareholders’ meeting planned for March or April, but critics have called for their immediate departure.
“It’s strange that the people who are being held responsible are going to stay in charge for two or three more months,” said Tatsuo Uemura, an expert on securities law and corporate governance at Waseda University. “That they’re being sued by the company means the company has lost confidence in them. Who will take responsibility for decisions that are made during that time?”
Olympus has admitted that managers hid more than Y100bn of investment-related losses dating back to the 1990s, then tried to fill the hole by diverting money from a series of acquisitions. Japanese police, prosecutors and regulators are conducting their own inquiries, as are the US Federal Bureau of Investigation and the UK Serious Fraud Office. Michael Woodford, the ousted Olympus president whose revelations brought the accounting deception to light in October, has launched his own suit over his dismissal.
While Mr Takayama has not been accused of taking part in the accounting deception, or even of having direct knowledge of it, the panel said he and other serving board members had not done enough to prevent it. For instance, he voted in favour of a highly unusual payment of nearly $700m to an obscure Cayman Islands-based financial firm that Olympus has admitted was part of the loss-hiding scheme – a payment that experts say should have raised red flags but went unquestioned by the board.
Even the statutory auditors who initiated the damages suit have not escaped criticism: the three-man group was in place before the scandal broke but also failed to sound the alarm. Its two nominally independent members come from companies with business links to Olympus – a common situation at Japanese companies that weakens auditors’ theoretically muscular authority.
Mr Uemura of Waseda speculated that Olympus’ auditors may have acted quickly on the latest panel findings in part to make up for past failings. “Normally in Japan nobody expects much of statutory auditors,” he said. “But once the panel said ‘sue’, they had no choice.”