Olympus shareholders say board must go

LONDON Tue Nov 8, 2011 4:32pm EST

LONDON (Reuters) - The largest foreign investor in Japan's Olympus demanded the resignation of the company's entire board and urged Japanese authorities to resist any temptation to draw a line under an embarrassing scandal by delisting the business.

Southeastern Asset Management, which owns about five percent of the 92-year-old camera and endoscope maker, said Tuesday's admission that the company hid losses on securities investments for decades "changes everything."

Brushing aside new Olympus President Shuichi Takayama's insistence he was "absolutely unaware of the facts," Southeastern said any further reign of the Olympus board risked damaging the company's key medical business.

"Ignorance is no defense. If you were there and not aware of it, then you were incompetent. If you were there, and aware of it without asking tough questions, then you were negligent. Either way, you need to leave," said Josh Shores, a principal at Southeastern Asset Management.

Shareholders have watched with fury as Olympus's shares crashed by around 70 percent since the October 14 sacking of Chief Executive Michael Woodford, who has since led a public campaign to shed light on undisclosed payments and baffling acquisition choices he says have cost investors $1.3 billion.

Takayama, a previous board member who was promoted last month, on Tuesday blamed former Chairman Tsuyoshi Kikukawa, Vice-President Hisashi Mori and internal auditor Hideo Yamada for the cover-up, saying he would consider criminal action.

"Takayama has been discredited based on his original response to Woodford's allegations. We are calling for the return of Michael Woodford as CEO," said Iain Campbell, Investment Manager at Baillie Gifford, a 0.2 percent Olympus shareholder according to Thomson Reuters data.

Kikukawa and Mori confessed to their role in the scandal on Monday night, Takayama said. The internal auditor has also offered to resign.

Southeastern also called for the immediate resignation of Kikukawa and Mori as directors, Yamada as well as media and investor relations manager Akihiro Nambu. It added that the board of directors and board of auditors should follow suit "as soon as practical."

David Herro, chief investment officer for Harris Associates, Olympus's fourth-largest investor with a four percent stake, told Reuters Olympus's statement about the "missing money" was a start. But he said much more needed to be done.

"The company's shareholders need clear and complete answers to the many lingering questions, and these answers need to be verified, so we can be confident that what we're now being told is in fact what happened," he said in an email.

Shores said he would call "in our strongest language" for an extraordinary general shareholder meeting to demand the removal of the entire Olympus board.

"Why? To prevent permanent damage from being done to the core Olympus business," he said.

With the eye of enforcement agencies in Japan, the United States and Britain on Japan, shareholders are growing increasingly nervous that Japan will opt to delist the business to take it out of the public limelight.

Shores appealed to authorities against any move that would further punish shareholders.

"Fix the problem. Get rid of those responsible. The medical business is still one of the best in Japan -- get a new reputable board in place that can issue a detailed report on these issues, make them go away and let the business get on with its core business," he said.

(Additional Reporting by Ethan Bilby; Editing by Elaine Hardcastle and Jane Merriman)

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