Woodford book chronicles story of coverup

Former Olympus president details battle with CEO, board 'yes men'

by Minoru Matsutani

Staff Writer

Last summer, Tsuyoshi Kikukawa, the CEO of Olympus Corp., instructed the firm’s executives to keep then-President Michael C. Woodford from finding out about a magazine article that exposed the company’s dubious transactions, a newly published book by Woodford reveals.

His Japanese-language book, “Kainin” (“Terminated”), by Hayakawa Publishing Corp., is scheduled to go on sale Thursday. It describes in detail Woodford’s battle with the camera and medical equipment maker’s charismatic and unchallenged CEO and his board of “yes men.”

The Briton, ousted in October after confronting Kikukawa and board members about the company’s dubious money transactions, is currently working on an English version of the book, which he hopes to publish by the end of the year, said Waku Miller, his spokesman.

The August issue of the magazine Facta, published July 20, revealed that Olympus had paid an unreasonably large amount of money to acquire three small Japanese companies as well as an unusually high M&A advisory fee to acquire a British company.

Woodford was in Hamburg, Germany, when a friend emailed him to ask if he had seen the Facta article. He did not know the contents of the article when he returned to Japan on July 28 to attend a board meeting. He had been hoping the article would be discussed, but it never came up, his book says.

The following weekend, a friend translated the article for him.

“I froze with shock,” writes Woodford, who spent 30 years with Olympus. “You cannot write this article without insider information . . . I cannot ignore this. I am the president. I am in a position to sign financial statements and auditory reports.”

Facta had sent a questionnaire and a notification of the planned article to Olympus before it was published, but Woodford saw the letter for the first time on the Facta website.

“It would be impossible that Kikukawa and other board members hadn’t known (about the article.) What was that peaceful board meeting about?” Woodford writes.

On Aug. 1, he confronted two of his more trusted subordinates, holding up the Facta August issue and asking if they had read it. They had, but Kikukawa had told them not to tell him of the article.

Confronting Kikukawa and Executive Vice President Hisashi Mori, who was in charge of financial affairs, the same day, Woodford quotes Kikukawa as saying: “I told other board members to make sure you don’t hear” about the article.

“You are busy being the president,” Kikukawa is quoted as saying. “I didn’t want to trouble you with such a trivial domestic problem.”

Kikukawa also told Woodford that the article was “partially” accurate, but that it was typical of Japanese media to write sensational articles. He added that no Japanese shareholders had complained.

Doubtful of Kikukawa’s explanation, Woodford writes he was determined to collect evidence that would shed light on the claims.

The dubious transactions included the advisory fee for acquiring Britain-based medical equipment maker Gyrus Group and the acquisitions of three Japanese companies that had little to do with Olympus’ main businesses — endoscopes and cameras.

For the advisory fee in the 2008 Gyrus deal, Olympus paid Caiman Islands-based M&A advisor Axes America ¥66 billion — 35 percent of what Olympus paid to acquire the company. Royalties for an M&A adviser are usually about 1 percent of the acquisition cost.

Also, Olympus paid about ¥73.4 billion to purchase three Japanese companies from 2006 to 2008, and wrote off ¥55.8 billion, or 76 percent, of the purchase price, in losses due to a decline in value of the three companies’ shares in March 2009.

One of the three companies recycles medical equipment, another makes plastic plates that can be used to heat food in microwave ovens and the other is a cosmetics maker.

In September and October, Woodford sent six letters to Olympus board members and accounting firms, seeking the reasons for investing in the three Japanese companies, and asking for due diligence reports on the acquisitions, the reasons for paying the $700 million advisory fee in the Gyrus Group deal and information on why Olympus switched accounting firms from KPMG to Ernst & Young.

Mori replied to Woodford several times, but never really answered his questions, Woodford writes in his book. Mori’s replies consistently reaffirmed his belief that the past decisions were made during board meetings after thorough deliberations.

On Sept. 28, after Woodford sent his fifth letter, he had a meeting with Kikukawa and Mori. He asked them to relieve Kikukawa of the CEO post and let him hold that position in addition to the presidential post so he could investigate the dubious transactions with more authority.

After much rancor, Kikukawa OK’d the shift, with Woodford’s promotion to president and CEO approved at a Sept. 30 board meeting. Board members, however, took a hostile stance toward him, with one criticizing him for sending letters to Ernst & Young.

“Then I realized my new title is effectively meaningless. Kikukawa has no intention to give up his power,” Woodford writes. “I was completely isolated.”

He asked Price WaterhouseCoopers (PwC) to review the transactions and was given a report on Oct. 11.

“The report was shocking but within anticipation,” Woodford writes. It mentioned possible illegal acts of Olympus board members and noted that prosecutors and financial authorities could begin investigations.

He then wrote a sixth letter to Kikukawa, Mori, other board members and Ernst & Young executives.

“It is clear that the current situation is now untenable and to move forward positively the necessary course of action is for you both (Kikukawa and Mori) to tender your resignations from the board. This approach would allow the situation to be managed in a discreet manner and minimize the reputational damage to both Olympus and yourselves,” Woodford said in the letter.

On Oct. 14, Olympus dismissed Woodford as president and CEO because of “his selfish management style,” a rationale that Olympus has never deviated from.

Woodford then gave all the information he had to a reporter with the Financial Times, which published front-page stories on Oct. 15 and 16.

“I didn’t think of tipping off Japanese media or investigative authorities because they have ignored a series of Facta articles,” Woodford writes in his book.

In November, Olympus admitted using the dubious transactions to hide losses in stock investments it made in the early 1990s. Prosecutors arrested and indicted Kikukawa, Mori and others in February and March.

The Tokyo Stock Exchange has, however, decided not to delist Olympus.

Woodford announced his resignation from the Olympus board on Nov. 30 and tried to persuade Japanese shareholders to let him lead the firm again.

However, Sumitomo Mitsui Banking Corp. President Tsuyoshi Kunibe and other shareholders refused to meet him, forcing him to give up his proxy fight to challenge the current management in January.

Unemployed, Woodford has sued Olympus in a British court for unlawful firing. He is also a defendant, along with Kikukawa and others, in a civil trial in which U.S. shareholders are demanding compensation for the sharp drop in Olympus shares.

Kikukawa served as president from June 2001 to April 2011 as well as a couple of weeks in October of last year. He was the CEO from April to Oct. 11, 2011, when Woodford was the president.

Olympus commands a 70 percent global market share in endoscopes for digestive organs.