Potential law suits left, right, and centre at Olympus

Olympus has announced that it's considering embarking on legal proceedings against current and former executives for landing it in one of the juiciest accounting scandals in the history of Japanese business.

An external investigation has pointed fingers at ten individuals, one of whom is Shuichi Takayama, the current President of Olympus, who should bear responsibility for the ¥100 billion cover-up. If it were to sue them on the advice of the investigating panel - details of which will be released tomorrow - it could be for damages amounting to ¥90 billion.

As if law suits against directors past and present weren't sufficient, and not forgetting the on-going legal investigations, there's also talk that Michael Woodford will sue the company for unfair dismissal. Well, woudn't you, when you were sacked under the pretence of your manangement style not meshing with the company where you'd worked for 30 years, but most likely it was for uncovering a multi-million yen scandal? Thought so.

(Headsup to the BBC and Financial Times)

Authorities raid Olympus' HQ

I'm guessing that 'Authorities raiding the office' was pretty close to the bottom of Shuichi Takayama's, the President of Olympus', wish-list. But that's just what has happened, as a team of prosecutors attempts to get to the bottom of the accounting irregularities that have pervaded the company for the past two decades.

Japanese TV recorded a train of officials tramping their way into the office. It wasn't just Olympus' Tokyo HQ that was over-run, though. The home of ex-President Tsuyoshi Kikukawa and three offices of businesses that played their part in hiding Olympus' losses amounting to ¥117.7 billion (£960 million) were also raided.

Olympus has stated that intends to co-operate fully with the investigation and has issued an apology to its investors, shareholders, and customers for the 'troubles and worries' it has caused them. Their troubles and worries are far from over, I'd venture. Whatever the investigation might turn up, the raid isn't going to help Olympus' share prices, which have already taken a colossal hit since the scandal broke in late October. Furthermore, Olympus' revised accounts, submitted to the Japanese Stock Exchange a whisker before the 14 December 2011 deadline, have revealed a serious cash-flow problem that could prove even more serious without some rapid restructuring at the company. It's all looking a bit bleak. 

(See also the BBC and The Guardian.)

What now for Olympus?

If you were Shuichi Takayama, President of Olympus, what would you do now?

Olympus has just escaped, by a whisker, being delisted from the Tokyo stock exchange. The financial reports that were submitted on 14 December to prevent this grizzly fate showed an ¥84 billion ($1.08 billion) reduction in net assets, and a loss of ¥32.3 billion ($414 million) over the past six months. And as a consequence, share prices have fallen by another 20%; let alone the descent that they took between the end of October and now - as a financial scandal of epic proportions unfolded before the world - which would have made Bode Miller proud.

On top of this, your board sacked the guy who uncovered all of these financial misdealings, basically because he had the audacity to do it. Of course, he's probably the person with the nous to get you out of this hole. Sorry, crater.

Olympus is running short on cash, your net assets are currently valued at ¥46 billion, and you need to do something, fast.

You've hinted at the possibility of a merger, either in the form of a capital tie-up or an operational or sales tie-up. This would help to bring the firm some much-needed cash, but at the cost of its independence. And who would you seek out for this tie-up? Hoya has just cut loose Pentax, so has the cash, but does it have the interest, and Fujifilm is on the up-and-up. But is this going to be best for Olympus?

Michael Woodford, the CEO whom you so unceremoniously sacked in October, has been quite open about his willingness to resume a role at Olympus, but it would be at your expense. He thinks it would be best to wipe the slate clean with a mass culling of the board, and the independent inquiry commissioned to find out just what was going on in your company suggested something similar. You of course would rather stay where you are, or at least ensure that who ever is in control next is of your choosing. Does this really help Olympus?

Woodford knows that Olympus needs to recapitalise, and swiftly, but he's against any kind of merger that would threaten its independence and he doesn't want to break up or sell the company to which he dedicated 30 years of his career. Instead, he'd seek out private equity or even consider a rights issue, when existing shareholders are issued warrants to buy new stock. Would he manage it? Who knows. Who knows if the rot hasn't set in too badly and Olympus isn't beyond redemption. But maybe he has the best chance.

If you want to rescue the company that we all suspect you love, Mr Takayama, from an ignominious fate, it might be optimal if you and the rest of the board fell on your swords. It might appear a drastic action, but the situation is dire. Piecemeal offerings, the continued taint of scandal, and puerile attempts to ensure some degree of control of the company even after you've gone won't help. Go now, and go with grace.

(More on the BBC and from Reuters.)

More murk at Olympus

The bigwigs at Olympus were probably hoping that the investigation they commissioned into the case of higher-than-expected payments to merger brokers would uncover a sloppy but somehow explicable chain of miserable accounting practices and they’d be able to restore a bit of stability to the company and reclaim some of the millions it has lost in share prices since Michael Woodford was sacked in early October. But oh no. Instead it would seem that piles and piles of bloodied linen are about to be laundered very publicly.

Not only does Olympus have to contend with dodgy dealings with Cayman Islands-based companies, rumours of Yakuza involvement in the business, a revolving door of presidents and chairmen, and plummeting share prices, but it could well face being delisted from the Japanese stock exchange, too.

It looks as if Olympus might’ve been concealing losses it had accrued on securities investments by covering them with funds from previous acquisitions. And it might’ve been going on for over 20 years.

Vice President Hisashi Mori has been dismissed following these revelations, and President Shuichi Takayama – who only stepped into the post at the end of October after Tsuyoshi Kikukawa stepped down – has been very quick to place the blame on his predecessor, on Mori, and Hideo Yamada, the firm’s auditor. Well, he has to do something; this doesn’t look good at all for Olympus. Its share prices have taken another dive (so they’re down about 70% since Woodford was kicked out) and the speculation about the future of the company is rife. Not good; not good at all.

(There’s more on the BBC and the Financial Times.)