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Olympus names activist investor to board to boost reforms

Scandal-plagued company takes rare step under a leadership reshuffle

Facing pressure from American activist investor ValueAct, Olympus decided to invite one of its partners to the company's board as part of a governance reform push.

TOKYO -- Japan's Olympus is accelerating reform of its much-criticized governance with its first shake-up of top leadership in seven years, which includes the unusual move of welcoming a foreign activist investor to its board.

The camera and medical device maker will invite Robert Hale, a partner at leading shareholder ValueAct Capital Management to join its board under the changes announced Friday.

Vice President and Chief Financial Officer Yasuo Takeuchi will also become president and CEO effective April 1, replacing Hiroyuki Sasa, who was appointed after a $1.7 billion accounting scandal broke in 2011.

The shadow of past accounting improprieties, Olympus' handling of which was widely criticized by foreign investors, appears to loom behind the unusual and drastic move of tapping an executive whose firm has been heavily pressuring the company since disclosing its stake.

Olympus "will become a truly global medtech company" through the reforms, Takeuchi told reporters Friday, using an abbreviation for medical technology. Hale's possible addition to the board is expected to hasten the company's efforts.

Takeuchi suggested the ValueAct partner was readily welcomed, saying Olympus "agreed to work together with Mr. Hale because our aims aligned."

On Friday, the company's share price soared 10% from the previous day to 4,005 yen as optimism grew over Hale's possible appointment.

Olympus' Vice President-cum-CEO Yasuo Takeuchi, right, will replace Hiroyuki Sasa, left, at the top of the scandal-dogged company. Olympus Vice President Yasuo Takeuchi, right, will replace Hiroyuki Sasa, left, at the top of the scandal-dogged company.

"If Hale becomes a director, we can expect a long-term commitment by ValueAct," said Kenichiro Yoshida at Ichigo Asset Management.

Olympus also said it aimed to transition its board to a structure composed of audit, nominating and compensation committees to improve oversight.

In the 1990s, bad investment decisions left Olympus facing up to 100 billion yen ($923 million at current rates) in paper losses on financial products. Successive generations of managers hid these losses off-book, prompting a third-party commission to brand the management as "rotten to the core" and shaking confidence in Japan's corporate governance overall.

After the scandal broke, the company logged a net loss of 48.9 billion yen for fiscal 2011, and its shares plumbed depths below 1,000 yen at one point. Both earnings and stock price have since improved, but performance remains lackluster despite Olympus' world-leading market share in gastrointestinal endoscopes.

For the current fiscal year ending March, Olympus projects that net profit will more than halve to 26 billion yen on roughly flat sales of 790 billion yen. Endoscope sales growth has stalled from cyclical factors, while legal fees related to accounting scandals keep piling on, the latter denting profit by 30 billion yen this fiscal year alone.

Olympus faces a dire predicament where "profit levels are low despite its grip on endoscopes, which are usually a profitable product," in the words of Tomoki Komiya at Mitsubishi UFJ Morgan Stanley Securities.

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