Shareholders of Olympus Corp <7733.T> voted in a new board on Friday but the firm's British ex-CEO, whose dismissal six months ago unveiled the biggest scandal in corporate Japan for decades, threatened to have the result annulled.
At the meeting, which some hoped would draw a line under the scandal, Japanese institutions and Olympus' lenders, suppliers and customers approved restated financial accounts and voted in new management nominated by the current, discredited board, all 11 of whom stood down.
Michael Woodford was sacked by Olympus in October after he queried staggeringly high advisory fees paid in past acquisitions, triggering a probe that uncovered a $1.7 billion accounting fraud stretching back over more than a decade. Olympus said then it fired Woodford for gross misconduct.
Foreign investors, who own 25-30 percent of the camera maker and the world's biggest manufacturer of endoscopes used for internal medical examinations, had hoped the scandal would shake up a deep-rooted culture of cozy ties between banks and boardrooms.
Woodford, who has said he feared for his life during the early days of the scandal and has since rushed to print a book Terminated about the affair, arrived by taxi ahead of Friday's meeting in a large Tokyo hotel function room.
Today is the day the new Olympus is supposed to start. It's a mockery. It's why the world looks on and continues to think this world works in a completely different way, it's Alice in Wonderland, he told reporters.
The meeting began promptly at 10 a.m. (0100 GMT) with Takayama and the entire board standing before shareholders and bowing deeply in a traditional gesture of public apology.
But, after 90 minutes, Woodford stood and said the board's earlier refusal to answer a written question about the reasons for his dismissal meant shareholders could ask the courts to invalidate the meeting - potentially leaving the company without a new management board.
Olympus Senior Executive Managing Officer Masataka Suzuki earlier told the meeting the company could not answer the question about why Woodford was fired as this was part of an ongoing legal case. Woodford is taking legal action against his former employer in Britain, seeking 10 years' salary for wrongful dismissal.
Amid rare raucous scenes at a Japanese corporate event, Woodford slammed the board and criticized it for keeping two of its members - Kazuhiro Watanabe and Shinichi Nishigaki - as senior managers.
Hundreds of billions of yen of shareholder value have already been lost through this scandal, he said. Do you not realize how that looks to the world? Today is the new start ... and you have those two gentlemen staying in the company? How dare you, shame on you.
He said that a refusal to answer the question on his sacking was against local law and such illegal conduct will constitute clear grounds for this EGM to be later cancelled in court.
Picture SLIDESHOW: http://r.reuters.com/puc35s
GRAPHIC: Scandal timeline: http://r.reuters.com/cuc77s
GRAPHIC: Revised earnings: http://r.reuters.com/nuc77s
Masterminds of cover-up: http://r.reuters.com/gag65s
Ex-CEO Woodford: http://r.reuters.com/fem74s
Shareholders approved Hiroyuki Sasa, 56, as the company's new president. Sasa joined Olympus in 1982 and has been head of both development and marketing at the group's medical equipment business, which has around a 70 percent share of the global market for diagnostic endoscopes. As chairman, they voted in 63-year-old Yasuyuki Kimoto, a former executive at Sumitomo Mitsui Banking Corp, Olympus's main lender and part of Sumitomo Mitsui Financial Group (SMFG) <8316.T>.
My mission, as a new director of a reborn Olympus, is to fix the damaged brand and win back trust as soon as possible, Sasa told shareholders. In order to do so, I think it is necessary to fundamentally reform the management structure to ensure that nothing like this happens again. By working together with the new management, I plan to do my best to rebuild trust and improve the firm's value.
Leading foreign shareholders had opposed both men, calling instead for fresh, outside talent amid concerns that Olympus' creditors will call the shots in the boardroom.
Big lenders such as SMFG and Mitsubishi UFJ Financial Group (MUFG) <8306.T> are often key investors in Japanese companies, with major stock and debt holdings - putting them in a powerful position to influence board decisions. SMFG holds a 3.4 percent stake in Olympus, as well as $2.8 billion in outstanding loans and bonds.
Since Woodford was fired on October 14, Olympus has admitted it used improper accounting to conceal massive investment losses under a scheme that began in the 1990s. It is under investigation by law enforcement agencies in Japan, Britain and the United States.
Over the months, seven people have been arrested, including former Olympus chairman Tsuyoshi Kikukawa, former executive vice president Hisashi Mori and former auditor Hideo Yamada. Under criminal charges, the executives could face up to 10 years in jail, or a fine of up to 10 million yen, lawyers have said. Olympus itself is suing for mismanagement five of its eight directors, including Takayama.
Local shareholders had pledged to stand by Olympus and welcomed closer ties with the banks that would provide financial comfort.
The banks are there ... they will help in terms of capital, Eiichi Suzuki, 60, told Reuters as he arrived for the meeting. The company already has first-class technology, so now it's a matter of management. I understand what Woodford wants to say, but he disclosed internal information. You need to be united under the president and I think he needs more experience.
Hiroshi Takahashi, 38, had said he would vote for the nominated board members. There are no reasons to oppose them. I think the company should stay as it is.
NEED FOR CASH
High on the new board's to-do list will be whether to seek a cash injection, possibly through a capital tie-up in its medical business. Sony Corp <6758.T>, Panasonic Corp <6752.T> and Fujifilm <4901.T> are among potential partners cited in media reports.
In December, Olympus filed five years' worth of corrected earnings statements to iron out its accounts, showing its net assets had dwindled to 46 billion yen as of end-September. By the year-end, Olympus had an equity ratio of just 4.4 percent, compared with about 30 percent for its rivals and less than a quarter of what is seen as a healthy cut-off, implying it needs to raise about 150 billion yen in fresh equity.
Olympus shares, which were up 3 percent on Friday, slumped around 80 percent as the fraud unfolded in October, but have since rallied and are now around half the pre-scandal level, valuing the company at $4.1 billion.
Olympus has estimated a 32 billion yen ($410 million) loss for the year just ended, blamed mainly on its camera business and tax asset writedowns - and well below its pre-scandal forecast for an 18 billion yen profit. In the previous year, it posted a 3.9 billion yen net profit.
(Additional reporting by Edwina Gibbs, Writing by Ian Geoghegan, editing by Jonathan Thatcher)