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New brooms sweep clean

15 December 2011 By Wayne Arnold

Olympus’s board wants to hang around until March and possibly April. That’s too long. Though the three directors implicated in the Japanese company’s ongoing accounting scandal have resigned, the remaining bunch failed to spot their scam. They also fired the only director brave enough to cry foul once it emerged. The company still needs to placate regulators, woo creditors and repel litigious investors. For that, it needs a fresh board as soon as possible.

Olympus dodged a bullet by publishing its second-quarter earnings by Dec. 14, just ahead of a deadline set by the exchange. That saved it from being delisted. It also showed that the damage done to the underlying business isn’t terminal. The company remains profitable at the operating level thanks to its dominant position in the endoscope market. Moreover, the board has made a step in the right direction by bringing in an independent panel to investigate.

But that hasn’t helped the shares much. After falling 55 percent since Woodford’s dismissal, they now move up or down by an average of 10 percent a day. That looks more like uncertainty over the scandal than a reflection of the company’s prospects. Olympus can probably avoid selling assets or raising new capital as long as it can convince bankers at a meeting scheduled for Dec. 16 that its 435 billion yen in net debt is manageable.

There are two big risks. The Tokyo Stock Exchange could still delist the company for misreporting its accounts. Meanwhile Olympus faces lawsuits from investors in Japan and the United States, where it has listed depositary receipts. Ousting the board won’t directly fix either, but would help show the company is distancing itself from past misdeeds, and attract more favourable treatment from regulators and shareholders.

The message doesn’t seem to have sunk in. Company president Shuichi Takayama has said he and his fellow directors plan to resign soon, but not before they can select their replacements in March or April. Michael Woodford, who the board fired as chief executive on Oct. 14, wants to come back with his own picks. But the last thing Olympus needs is four months of drift. Shareholders should push for a clean slate.


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