By Kirstin Ridley and Alexander Smith
LONDON Nov 1 Michael Woodford makes an unlikely
As he tucks his tie into his shirt and digs into a plate of
Dover sole in a London restaurant, it's hard to imagine that
this down-to-earth 51-year-old Englishman is at war with one of
Japan's biggest corporations.
Woodford is taking on the leaders of Olympus Corp., one of
Japan's most venerable camera makers. He was made CEO of the
company in early October. But two weeks later, on Oct. 14, the
board sacked him for what chairman Tsuyoshi Kikukawa said was
Woodford's failure to understand the company's management style
and Japanese culture.
Woodford says he was dismissed for questioning a series of
odd-looking deals and hefty payments the company had made over
the past half decade, including the biggest mergers and
acquisitions fee ever.
Revelations about the payments have now forced Woodford to
flee Japan, led Kikukawa to resign, wiped around $4 billion off
Olympus' market value and prompted law enforcement agencies in
Japan and the United States to investigate the firm. Sources in
Japan have told Reuters the country's securities watchdog is
probing Olympus' takeover deals, focusing on whether it properly
disclosed relevant information. The head of Tokyo's stock
exchange says the company may face shareholder suits if it does
not produce a truly independent investigation into how the
acquisitions were accounted for.
Unanswered questions about the payments have also spurred
speculation that Japan's Yakuza crime syndicates -- which a
Japanese magazine euphemistically described as "anti-social
forces" -- could be involved.
Olympus said there was nothing improper about the payments
and denies any link to "anti-social forces". At a news
conference on Oct. 26 to discuss his resignation,
70-year-old Kikukawa said he needed to leave "to restore
confidence in the company under the new management". Olympus was
clean, he said. Woodford was guilty of his own power grab and
sacked because of "his autocratic actions, and these included
intimidation of my own staff".
Kikukawa's successor as chairman, Shuichi Takayama, also
says the company has done nothing wrong. "You are asking me
about anti-social forces, but I am absolutely not aware of any
such thing," he said at his first news conference last week.
In a separate briefing with reporters, Takayama said he
didn't think the M&A fee, of $687 million for a $2.2 billion
takeover, was "inappropriately high". He said confidentiality
rules meant he was "not in a position" to know where the funds
had gone after Olympus had paid its advisers.
Both Japanese executives have declined interview requests
Glancing nervously at a nearby table of diners, Woodford
wonders aloud whether he should have employed body guards. He is
tired and the strain of the last few weeks is showing. His cell
phone never stops ringing; usually it's journalists wanting to
interview him. When callers ask how he is bearing up he repeats
the same word again and again: "stressed." He comes across as
polite but blunt.
When he was ousted, Woodford lost his corporate support
network -- his staff, expense account, reliable high-speed
broadband. His Spanish wife Nuncia now acts as his temporary
personal assistant, although she struggles with the paperwork
and emails. A man Woodford identified as his "trusted counsel"
was poring over a laptop in Woodford's apartment during one of
several interviews with Reuters. Woodford says he could do with
a team of 15 to help his investigations into the Olympus
payments, and his busy schedule.
His nervousness belies his determination. The 31-year
Olympus veteran has his sights set on the removal of its entire
board, which he says failed in its duty to investigate irregular
payments, including the $687 million fee on the purchase of
British medical equipment maker Gyrus in 2008.
Woodford's dark eyes sit in a tanned face; his nose and
cheekbones are sprinkled with freckles. He carries a laptop and
dossiers of papers in two shoulder bags. He says he has shared
the documents with Britain's Serious Fraud Office (SFO), Japan's
Securities and Exchange Surveillance Commission (SESC), the U.S.
Federal Bureau of Investigation (FBI), and the U.S. Department
of Justice (DOJ), and contacted the U.S. Securities and Exchange
(SEC) regulator in his one-man campaign to "cleanse" Olympus.
Woodford grew up with two sisters in Staffordshire in the
English West Midlands before moving north to Liverpool after his
parents divorced when he was seven.
He cut his teeth as an Olympus salesman in north-eastern
England in his twenties, working his way into senior positions
in Europe. He was made president of the entire company in April,
the first foreigner to hold that position.
Woodford speaks no Japanese. But he won respect as a cost
cutter, he says.
His elevation was significant in conservative Japan. With
some notable exceptions -- Carlos Ghosn at Nissan and Howard
Stringer at Sony -- very few foreigners run Japanese companies.
The appointment of a foreign boss usually signals strategic
change, as in the case with Stringer, or belt-tightening, as
with "Le Cost Cutter" Ghosn.
But the chatter in Tokyo when Woodford took over was that he
had been given the job because he would be easy to control.
Chairman Kikukawa, known as Tom to his friends, is fond of
poodles. He uses a photo of his two pet poodles, Chappi and
Megu, as his computer screensaver and brandished shots of the
pair in a light-hearted moment during a February presentation on
Olympus' cameras business. Some sceptical Japanese saw Woodford
as the chairman's new pet.
"I felt sorry for him. He doesn't speak Japanese, so he
would only be a Yes Man to Kikukawa, a top executive in name
only, Kikukawa's puppet," says Masaharu Hamada, an Olympus
employee who has taken his own legal action against the company
because, he says, he was subjected to management harassment
after he reported a compliance breach by his supervisor. (The
lower Tokyo court ruled in the employee's favour in August;
Olympus is now appealing that decision in the Tokyo High Court.)
As Japanese investigative magazine Facta would later note:
"The fact that the company picked a bottom-ranking foreign
executive director with virtually no significant
responsibilities from amongst a total pool of 25 potential
candidates, including the vice-president who was responsible for
medical instruments... set tongues a-wagging."
Japanese experts say Woodford, as a foreigner, failed to
understand that CEOs are meant to toe the line. Woodford himself
says he can be loud-mouthed, opinionated and strong-headed.
Asked why he was appointed as Olympus' first foreign president,
Woodford now says the board must have believed he'd never "find
out and they were in desperate need to recover their financial
An elderly Olympus employee leaving a company building in
Southend, England, where Woodford used to work, said the former
boss was "a nice guy to work for". But "cut costs? Just look
over there at that building. They spend ... there's a nice
STORM CLOUDS GATHER
The new boss spent about three-quarters of his first few
months travelling around the company's empire.
On July 20, friends and colleagues drew Woodford's attention
to a negative article in Facta. The magazine alleged Olympus had
made undisclosed payments tied to a series of acquisitions,
including of firms such as cosmetics and medical waste recycling
that had little to do with its core camera and endoscope
business. One payment stood out in particular: the $687 million
apparently paid to advisers as part of the Gyrus acquisition.
When Woodford returned to Japan in the first week of August
he began asking questions.
"I saw (senior executive Hisashi) Mori, saw a few people I
trusted and asked if they had seen the (Facta) report," he said
during an interview in his London apartment.
On Aug. 2 he says he requested a lunch meeting with Kikukawa
and Mori, who was also Olympus' compliance officer. Woodford
says the two Japanese men ordered sushi; he describes the
meeting as "good humoured".
But when he produced a copy of the article, "the mood
Kikukawa told him he had decided Woodford should not be told
about the allegations because he was "too busy" dealing with
other matters. "You're the president," Woodford says Kikukawa
told him. "I told people not to tell you."
Woodford says Kikukawa brushed the article off as a Japanese
domestic issue -- tabloid, sensationalist journalism. Mori, he
says, was evasive. "I thought things were profoundly wrong,"
He asked Mori, who was officially his deputy, "Who is your
"Chairman Kikukawa," Mori answered, according to Woodford.
Like Kikukawa, Mori declined to be interviewed for this
Woodford left Japan to take a break on the Spanish island of
Majorca. He was uneasy, but things were about to take another
Facta published a second article that linked the payments to
"anti-social forces". This prompted Woodford to write the first
of a series of six letters addressed to either Mori or Kikukawa.
Entitled "serious governance concerns relating to the company's
M&A activities", the letter outlined his worries. He copied in
board members for good measure.
"I made it clear I would have to resign if I didn't get
answers. I pushed and pushed and pushed and by letter four, I
copied in (auditors) Ernst & Young." Olympus' auditor "said they
would investigate as appropriate," Woodford says.
A spokesman for Ernst & Young declined to comment, citing
its duty of confidentiality as auditor.
In the letters, which Reuters has reviewed, Woodford focuses
on two decisions that have hit the company's financial position:
the costs linked to the Gyrus purchase and an extraordinary
goodwill charge of around $600 million, taken six months after
the company bought three Japanese start-ups -- a microwaveable
cookware maker, a medical waste recycler and a cosmetics firm --
"If this information is neither forthcoming nor satisfactory
in its content, then the advice I have received is unambiguous,
in that I should not return," he wrote to Kikukawa on Sept. 26.
Reuters reviewed some, but not all, of the answers to
Woodford's letters. Most were brief. Responding to his request
for details about the advice Olympus sought on the fee structure
of the Gyrus deal, Mori wrote: "Legal firm generally avoid to
make advice and/or provide with view in terms of compensation of
financial advisory service (sic). (Law firm) Mori Hamada &
Matsumoto made a document review legally but did not make any
financial advice through their document review."
ANOTHER BLOW ON THE WHISTLE
This was not the first time Woodford was involved with
exposing corporate irregularities. He says he uncovered two
corruption cases in Germany around six years ago, which led to
an Olympus director leaving without compensation.
The Hamburg state prosecutor's office told Reuters three
executives in the management team were charged in March for
allegedly issuing invoices to Olympus Europe in 2003, for which
no deliveries or services had been made. No date has been set
for a court appearance. The company could not be reached for
comment on the case.
"You will know from the corruption cases we had in Olympus
Europe, I am never afraid of challenging where I believe
wrongdoing may have occurred or contacting the police and the
relevant authorities," Woodford wrote to Kikukawa in the same
His final two letters were copied not only to senior
partners at Ernst & Young in Japan, Europe and the United
States, but also to the auditor's global chairman and CEO.
Woodford also simultaneously commissioned
PriceWaterhouseCoopers (PwC) to investigate the deals. PwC
quickly discovered that the $687 million Gyrus fee had been paid
to two small firms, U.S.-based Axes America LLC and Cayman
Island-based Axam Investments Ltd.
The fee was equal to around a third of the takeover value,
compared with the usual 1-2 percent charged by established
global investment banks.
The PwC report identifies Hajime "Jim" Sagawa as the
principal of Axes, which was the main advisory firm for the
Gyrus deal. It said Sagawa was Axes president and "held himself
out" to be a director of affiliated firm Axam, which ultimately
received the bulk of the fee from Olympus. Reuters visited
Sagawa's home in Boca Raton, Florida, where his wife Ellen said
he was travelling and gave his mobile number. Messages left for
Sagawa on the cell phone were unanswered, and requests for
interview at a Japanese affiliate, Axes Securities Japan, were
declined. The Cayman company registry shows Axam was delisted
for failing to comply with registration regulations.
PwC also examined the three 2008 purchases which had led to
the near $600 million write-down.
Woodford describes the report, which was delivered on Oct.
11 and which Reuters has reviewed, as a "catalogue of calamitous
errors and exceptionally poor judgment."
The report concluded: "We were unable to confirm that there
has been improper conduct, however, given the sums of money
involved and some of the unusual decisions that have been made
it cannot be ruled out at this stage... In addition, there are a
number of other potential offences to consider including false
accounting, financial assistance and breaches of directors'
duties by the board."
Confronting Mori and Kikukawa in early October, Woodford
says he asked a manager he trusted to be his witness. "It was a
horrible day," he recounts grimly. "There was lots of shouting.
Woodford demanded authority over board appointments, pushing
for the resignation of both Kikukawa and Mori.
Kikukawa started shouting, Woodford says.
"Don't shout at me. I'm not your poodle," Woodford says he
Woodford said he would quit as president unless Kikukawa
gave him the CEO role.
"I said I couldn't manage the company without any authority.
The conclusion was that I was made CEO."
At the following board meeting, though, rather than discuss
the PwC report and his concerns, directors grilled Woodford. He
says he was accused of having raised no objections to the
acquisitions either and was asked why he had copied the auditors
in on his correspondence.
Woodford realised that even as chief executive, he would
never be able to wrest control of the company from the chairman.
In his final letter to Kikukawa on Oct. 11, he wrote: "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
In an email he sent to Olympus staff in the third week of
October, Kikukawa said Woodford had set out to build an empire.
He accused him of assembling a "gang" of direct reports who
would normally have reported to his lieutenant, Mori.
"At a meeting with fund managers, and in front of our own
executives, Woodford said his gang will run the company,"
Kikukawa wrote. "What a extremely low-class word, 'gang', but
it's spot-on. It became apparent that his style was to surround
himself with loyalists and eliminate those who got in the way
... I know someone who also actually heard him say that he was
planning to get rid of five board members, including Kikukawa
Woodford was a micro-manager, Kikukawa wrote in the staff
email, obtained by Reuters. While heading the European
operation, he had insisted on personally approving every piece
of stationery ever purchased; in Tokyo he instructed staff to
escalate to him any decision which involved spending. "He must
get very nervous when he doesn't know where each and every yen
goes," Kikukawa wrote.
In an earlier email sent to staff on Oct. 14, the day
Woodford was fired, Kikukawa said his dismissal was a result of
his autocratic style of management. "He ignored established
decision-making processes and created many wedges among the
managers and within the organisation," Kikukawa wrote. "This was
vastly different to what we had expected of him, which was to
accelerate decision-making and speed up the management.
"I felt that there was no time to lose in deciding (to fire
Woodford) to avoid having such a situation linger and hurt our
stakeholders," he wrote.
Woodford sighs impatiently when these allegations are put to
him. "I never said 'my gang'," he says. "It's just a diatribe
and it really is silly. It's just nonsense.
"Look, this is not about a power grab," he adds. "I found
things that are profoundly wrong... that is the real story."
Kikukawa called an emergency board meeting for Oct. 14. Mori
sat on Woodford's left. But the seat on his right, reserved for
Kikukawa, remained empty. The man who had stood at the helm of
the company for a decade was seven minutes late. Woodford
remembers this, as it is almost unheard of in Japan.
It was also uncomfortable. "No-one made eye contact,"
Woodford recalls, although he says Mori tried to make small
talk. "I know what you are going to do," he told Mori quietly.
When Kikukawa appeared, he went to the podium, rather than
to his seat. He said the agenda that had been passed around
earlier had been cancelled. He asked the board to consider
Woodford's dismissal. Woodford was not permitted to speak. All
14 board members voted. The vote was unanimous. The meeting was
Woodford was asked for his credit card, his two cell phones
and computers. He was told his driver would no longer be
available and asked to leave his apartment that weekend --
although he says he paid 51 percent of the rent himself. He
should leave on the limousine bus, he was told.
Someone he trusted suggested he leave Japan immediately for
his own safety.
He was prepared. "I made sure all my computers were sent
back to the UK" before arriving for the board meeting, he says.
He left by the first available flight to London via Hong
Kong that afternoon. He contacted Britain's Serious Fraud Office
and sent a dossier of documents to Japan's SESC. He also sought
advice from the British police about whether he needed
protection. On Oct. 26, he flew to New York to meet FBI and DoJ
officials and has since appointed both U.S. and UK lawyers.
In the relative comfort of his UK apartment, he ponders the
payments. They "are inexplicable," he says. "The only way you
can stop the company heading for the rocks is by answering the
questions. It's bizarre. It's scary."