December 4, 2011 / 10:55 PM / 7 years ago

Analysis: Japan's silent majority may find its voice over

TOKYO (Reuters) - Some big Japanese shareholders in disgraced firm Olympus Corp may support ex-CEO Michael Woodford’s campaign to return to the helm — a once-unthinkable step for investors that are more usually known for their discreet, hands-off approach.

Experts say that outcome, though still uncertain, would be a rare case of activism and mark a big attitude change for domestic financial institutions which traditionally hold shares to cement business ties and prefer to avoid public battles.

“There’s never been an event that has actually forced people to say something needs to change. The real question is, could Olympus be a turning point?” said senior lawyer Edward Cole, whose work advising firms on share offerings and mergers makes him well acquainted with the attitudes of Japanese institutions.

“The optimist would say yes. The pessimist would say there have been similar scandals in the past that have not led to any sort of systemic change,” added Cole, a partner at law firm Freshfields Bruckhaus Deringer in Tokyo.

Woodford, who blew the whistle on accounting tricks at Olympus after his sacking from the top job in October, launched a campaign this week to oust the current board and replace it with his own team of candidates led by him as nominated CEO.

That has set up a battle between Woodford, an Englishman openly critical of aspects of Japanese management culture, and current Olympus President Shuichi Takayama, who plans to remain, at least in the short term, to get to the bottom of the scandal.

Woodford, who was a rare CEO in Japan, is talking to investors about replacing all the directors, including Takayama. Though he has yet to reveal his own slate of candidates, he wants shareholders to vote in a new board by February.

Already some major foreign shareholders have supported Woodford’s bid to oust the board, but Japanese shareholders, with about 70 percent of the share register as of end-March, hold the key and are giving few public clues on their position.


Nippon Life, which was the biggest Olympus shareholder until cutting its holding to 5.11 percent this month, is undecided.

“We will make an appropriate decision as a shareholder based on disclosed information, including the investigation by the third party panel ... as well as our previous stance on (what is best for) improving the medium- and long-term value of the company,” Nippon Life spokesman Akira Tsuzuki said on Friday.

A spokesman for Mitsubishi UFJ Financial Group, which includes Bank of Tokyo-Mitsubishi UFJ, declined to comment. The group recently cut its Olympus stake to 7.61 percent from 10 percent but remains a top shareholder.

In contrast, big foreign investors such as Southeastern Asset Management, which has 5 percent, have loudly proclaimed they want the current board to leave and Woodford to return, although none has formally demanded an emergency shareholders’ meeting.

But the public silence of Japanese institutions, which alone hold almost 50 percent of Olympus, should not be interpreted as a sign that they are unfazed by the scandal at the 92-year-old maker of cameras and endoscopes, experts say.

Like foreign investors, they have seen more than half the value of their Olympus investments wiped out since Woodford was fired and went public with his doubts about murky M&A deals that the firm later admitted were used to hide investment losses.

“Keeping quiet does not mean they are not concerned,” said Brian Waterhouse, bank analyst at CLSA in Tokyo.

“They would simply rather discuss with management and perhaps other shareholders what’s going on in camera rather than in the blazing light of publicity.

“But given that this has drawn international attention and calls into question corporate governance right the way through Japanese industry, it is a concern for every company and every investor looking at Japan,” he said. “So it should not be automatically assumed that financial institutions would simply default to backing the incumbent management or their proxies.”

President Takayama, who took over the presidency after the scandal broke, says his management team is ready to step down once Olympus is back on track, but has not said if that could happen before the next scheduled shareholder meeting in June.

Even conservative Japanese shareholders probably agree the current board has lost credibility, but bringing back whistleblower Woodford through a highly public proxy fight might still not be to their taste, analysts said.

“For those with somewhat of a Japanese perspective that wants to settle things smoothly, sure, what Woodford is saying is right and Olympus indeed has a huge problem,” said Takeyuki Ishida, vice president of Institutional Shareholder Services, a proxy advisory firm.

“But some may be worried about the severe confusion that could take place upon his return. Therefore, Woodford should try to explain and convince that this won’t be the case.”

Should Japanese institutional investors back Woodford, foreign investors would doubtless take the change as a positive sign for Japan’s stock market overall, analysts said, but whether they would do so was tough to predict.

“There have been changes in the way of thinking, but the changes are not so abrupt. So the question is, will they stick to the old way of thinking or take a step forward,” said Nomura Securities analyst Kengo Nishiyama.

“If they take a bold step, that will be pretty surprising.”

Additional reporting by Yoko Kubota, Chikafumi Hodo and Emi Emoto; Editing by Mark Bendeich

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