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Jan 10, 2012

Sue and retain? Olympus' shoddy corporate governance practices

Disgraced Japanese camera and optical device maker Olympus has taken an unprecedented step to sue, yet retain, top executives involved in the nation’s worst accounting scandals.

The move has thrown the spotlight on Japan’s reputation for weak corporate governance policies. Olympus says it is seeking $47 million in damages from 19 current and former directors—including President Shuichi Takayama—for either neglecting or failing to prevent the scandal. The Wall Street Journal says the directors being sued, including five incumbent executives, will stay in their posts until the next shareholders' meeting in March or April, to ‘avoid harming the company's operations.’

Olympus says it intends to revamp its internal practices, reform its corporate governance, raise more capital and restore its credibility. So corporate governance experts are confused by the plan to retain these individuals.

Six of Olympus' 11 directors are being sued: five of its eight internal directors and one of three external directors.

‘The external board member being sued does not need to remain on the board until March or April,’ argues Douglas Park, a Silicon Valley corporate governance expert. ‘Unlike the other Olympus executives who are being sued, the external director has no impact on business operations.’

Frank Feather, a Canadian-based board strategist, says the case highlights the major corporate governance reform needed at Japanese companies but he believes American firms can learn from this Enron-esque scandal too. ‘This case should put directors worldwide on notice that they had better vastly improve their due diligence and overall performance,’ says Feather.

It was previously reported that Takayama plans to step down by the end of January.

Aarti Maharaj

Aarti is deputy editor at Corporate Secretary magazine