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Woodford sues Olympus for unfair dismissal

Former Olympus CEO Michael Woodford holds a briefing for reporters ahead of a news conference in Tokyo.

The ousted British CEO of Olympus abandoned his three-month battle to regain the helm of the scandal-tainted company, blaming lack of support from big Japanese shareholders and the trauma suffered by his family because of the affair.

Michael Woodford blew the whistle on a $1.7 billion accounting fraud that rocked the once-proud maker of endoscopes and cameras, but failed to win over Japanese institutional shareholders including Olympus' main lenders, who support a board that has been castigated for insufficient oversight.

"Despite my having done the right thing, none of the major Japanese institutional shareholders have offered one word of support to me," Woodford said in a statement.

The decision by Woodford, who was fired in October after just two weeks as chief executive, leaves foreign shareholders who want a new slate of directors, including US fund manager Southeastern Asset Management, without a champion to lead any proxy battle when the company convenes an extraordinary shareholders meeting as early as March.

Woodford told a group of journalists on Friday that he would sue Olympus for unfair dismissal and had instructed his lawyers to begin legal action in Britain. Olympus said in October it was sacking Woodford because he had failed to understand the company's management style and Japanese culture.

"There are no grounds whatsoever for dismissal," Woodford said.

Woodford, who fled to England after his sacking citing unspecified safety concerns, said the trauma suffered by his wife after he went public with his campaign played a major part in his decision to drop his bid to return to Olympus.

"It's been a frightening period for my wife, who has suffered a lot and every night still wakes screaming in a trance and it takes several minutes to calm her ... I have therefore decided for her emotional well-being that I cannot put her through any more anguish," he said in his statement explaining why he was abandoning his battle to be reinstated.

Olympus is being investigated by Japanese police, prosecutors and regulators and US and British authorities over the scandal, in which the firm used dodgy M&A deals to hide investment losses stretching back over two decades.

Woodford also said on Friday he would give an interview next week at the UK Serious Fraud Office.

Lax governance

The scandal at the 92-year-old firm revived concerns about lax corporate governance at Japanese companies generally and sparked speculation that organised crime syndicates were involved in the cover-up.

An external panel appointed by Olympus to investigate the scandal in December issued a scathing rebuke of core management but said it found no evidence that gangsters were involved.

The company's main lender and major shareholder, Sumitomo Mitsui Financial Group (SMFG), is backing existing management led by CEO Shuichi Takayama, which is seeking a capital tie-up with a rival firm to bolster Olympus' finances.

Olympus' net assets are dangerously thin after it corrected its accounts to include the effects of the 13-year accounting fraud.

Shareholder equity was just 42.9 billion yen ($556 million) at end-September, or 4.5% of total assets, less than a quarter of what is seen as a healthy cut-off. A 20% proportion of equity would imply that it needs to raise about 150 billion yen in fresh equity.

Japanese media have reported that Sony, Fujifilm and Panasonic are among those that may ride to the rescue of Olympus.

Japan's big banks such as SMFG and Mitsubishi UFJ Financial Group are often cornerstone investors in Japanese blue chips, with major equity and debt holdings. That puts them in a powerful position to influence board decisions.

In a sign that lenders are in the driving seat at Olympus, the company appointed industrialist Shiro Hiruta, with connections to Olympus' biggest lender SMFG, as the head of an outside panel to advise the firm on a management shake-up.

SMFG, which declined a request from Woodford for a meeting, holds a 3.4% equity stake in Olympus as well as 227.5 billion yen ($2.95 billion) in outstanding loans and bonds, according to company data and sources.

Woodford told reporters he thought he could have won a proxy fight, but, in a reference to the lack of support from Olympus' main bank, added: "If I won, what was I coming back to?"

"Weight off my shoulders"

He took aim at Japan's system of cross-shareholdings in which investors hold shares to cement business ties.

"The cross-shareholding system in Japan, while clearly serving the country well in the years following the Second World War, is in today's world harmful," he said.

"Such a compliant approach removes one of the essential safeguards in relation to governance and also allows the boards of companies which are under-performing to remain in office."

Nippon Life Insurance, one of the firm's biggest shareholders, said it had no comment.

Woodford, who had described his experience after blowing the whistle at Olympus as resembling a John Grisham thriller novel, said he was discussing a book deal of his own.

"I am very motivated to keep preaching the word about how it happened and why it happened," he said, adding his decision to give up on a proxy fight was "a huge weight off my shoulders".

Olympus shares slipped 4% to 990 yen in early trade but later recouped and were up about 1.5%.

The shares have lost about 60% of their value since the onset of the scandal, although they have stabilised as the market gained confidence that the company could avoid a humiliating delisting of its shares that would effectively cut it off from the equity market.

"From a general perspective, I'd say Woodford's move to end his campaign was expected. Investors that were buying Olympus shares hoping for his return are disappointed and dumping the stock," said Masayoshi Okamoto, head of dealing at Jujiya Securities.

"But there are many other perspectives on Olympus and why it is still trading at this level. There are obviously many investors that think that even without Woodford, the company has such a strong market share (in endoscopes) that it has value as a possible for TOB (potential acquisition target)," he added.

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