* Olympus case takes shine off recent steps to improve
governanceBy Nathan LayneTOKYO, Oct 18 (Reuters) - The scandal at Olympus Corp
triggered by accusations of improper payments has put a
spotlight on what critics say is a key weakness of
Japanese-style management: the lack of strong independent
oversight on most boards.Japanese boards are typically stacked with insiders, and
Olympus, a camera and medical equipment maker whose chief
executive was abruptly dismissed last week, is no exception.Twelve of Olympus’ 15 board members are company executives,
and one of its three outside directors failed to pass
a test of independence set by top proxy voting firms.This structure, while common among Japanese companies,
appears to have left the Olympus board vulnerable to groupthink
when dissension and rigorous debate were needed most.”You have so many insiders, very few independent members and
none of them is really in a position to challenge the
decision-making of long-standing members of the board,” said
Robert McCormick, chief policy officer at proxy advisory firm
Glass Lewis & Co. “I think the CEO kind of came into that.”A spokesman for Olympus said its board of directors was
functioning well.Former Olympus CEO Michael Woodford has told media he
believes he was sacked for questioning about $680 million in
payments to financial advisers in the purchase of Britain’s
medical equipment firm Gyrus in 2008, or one-third of the
transaction price, and $600 million in goodwill impairment after
other small acquisitions in Japan.Olympus says that Woodford was dismissed because of a clash
of management styles and that it has carried out proper
accounting and disclosure for the acquisitions.SHARES PLUNGEBut the relentless slide in the share price — it has lost
43 percent in the past three sessions — suggests investors are
not satisfied with the company’s explanation and generally lack
confidence in management.Chairman Tsuyoshi Kikukawa, who replaced Woodford as CEO,
told the Nikkei newspaper on Tuesday that the Gyrus-related
payment was closer to 30 billion yen ($391 million) and said
losses at the domestic companies it acquired represented lapses
in judgment on his part.But to some critics Kikukawa’s comments may only reinforce
the notion that there have been few checks on his authority and
may not silence criticism of the payments, which at 30 billion
yen were still unusually high for an acquisition of that size.The lack of independent directors supervising management is
one of the key factors behind Japan’s No. 36 ranking out of 39
countries on corporate governance in the latest survey by
research firm GMI .Other propagators of poor governance include
cross-shareholdings with business partners and a tendency for
executives to hang on wielding influence in advisory posts even
after they’ve retired from the board.The Olympus case may give the impression that governance is
moving backwards, despite a series of steps aimed at improving
the situation in recent years, including the Tokyo Stock
Exchange’s requirement from this year that all companies have at
least one independent director or auditor.”This is a negative step for corporate governance in Japan,”
said Jamie Allen, secretary general of the Asian Corporate
Governance Association based in Hong Kong.”There had been some hope that Japanese companies would take
on not just outside directors but outside managers and that
corporate cultures in Japan would be more open and
international.”
