Tokyo: Japan’s Olympus Corp fired its chief executive officer (CEO) and president, blaming the Briton in unusually blunt terms on Friday for trying to shake up 92 years of the firm’s management culture.
Shares in the precision instrument and camera maker plunged 18% after Olympus said the board had agreed unanimously to dismiss 51 year-old Michael Woodford, who described himself in a magazine article as “loud-mouthed” and “strong-headed”.
In an astonishing fall from grace, the 30-year Olympus veteran only became president in April and CEO this month with glowing reports on his performance, company press releases show.
Analysts said Friday’s move could deal a blow to ambitious cost-cutting plans at Olympus that Woodford had championed. He was credited with successfully cutting costs in the company’s European division.
“We hoped that he could do things that would be difficult for a Japanese executive to do,” said Olympus chairman, Tsuyoshi Kikukawa. Woodford was one of only a handful of foreigners running a large Japanese corporation.
“But he was not able to understand that we needed to reflect the management style we have built up since the company was established 92 years ago, as well as Japanese culture,” he said.
Kikukawa will take over as president and chief executive, roles he had stepped away from to allow Woodford’s appointments.
Japanese boards rarely dismiss top executives, so the announcement took financial markets by surprise. The firm lost nearly a fifth of its value in trading volume of nearly 36 million shares, 19 times the average volume traded over the past 30 days.
Just on Thursday, Goldman Sachs had upgraded Olympus shares to a buy from neutral on expectations the new management team would make the company leaner and drive profit growth over the next decade.
“I don’t think it’s a disappointment just because he’s a foreigner. It’s more a question of investors believing he was brought in to make much hoped for change and when he tried to execute he met resistance,” said Michael Newman, head of Japanese equity sales at Macquarie Capital Securities. “Investors will feel it’s a conflicting message.”
Brokers were quick to downgrade their ratings and earnings forecasts on Olympus on Friday. With Woodford’s firing, Nomura said it no longer had any expectations of earnings improvement resulting from bold cost cuts from the next fiscal year and cut its rating on the shares.
“Opinionated, loud-mouthed, strong-headed”
Woodford told the news agency in May he would cut jobs to achieve his mid-term cost targets and reverse a slump in earnings while avoiding forced redundancies in Japan for cultural reasons.
He acknowledged previously his management style could be confrontational and in a recent interview with the magazine of the British Chamber of Commerce in Japan, which put him on the cover, he highlighted the difficulties of instigating change in Japan’s corporate culture.
“I understand why Japan gets tagged with the ‘unique’ label; it’s one of the most impenetrable cultures for outsiders,” he told the magazine.
“Status quo is still very powerful in Japan. When you change something, you close something or withdraw from something, you will get resistance based on my predecessor’s decisions, especially when something is seen as sacrosanct or a holy cow,” he said.
“I can be opinionated, loud-mouthed, strong-headed and direct,” he said in the question-and-answer style article.
Olympus said Woodford ignored the management structure of the company by giving orders directly to staff, rather than via the heads of the various units. They also said there had been disagreements over restructuring the R&D division.
The Olympus board said in a statement that Woodford “has largely diverted from the rest of the management team in regard to the management direction and method and it is now causing problems for decision-making by the management team.”
Woodford will remain as a director until that position is voted upon at the next annual shareholders’ meeting, which is normally in June. Efforts to contact Woodford were unsuccessful.
Olympus’s operating profit fell 41% to ¥35.4 billion ($460 million) for the year to March 2011, as its struggling camera division held back the healthy medical equipment unit.
The camera division lost ¥15 billion in the year to March 2011.
“What exactly happened at Olympus is not clear, but personal differences among corporate managers happen everywhere, so his situation is not necessarily just because he was a foreign manager at a Japanese firm,” said Koichi Ogawa, a chief portfolio manager at Daiwa SB Investments, who does not own Olympus shares.
Other foreigners who hold top posts in Japan include: Howard Stringer, the Welsh-born CEO of Sony Corp; Craig Naylor of Nippon Sheet Glass; and Carlos Ghosn, the Lebanese-Brazilian president of Nissan Motor Co.
The last time a major Japanese company fired its president was in April last year, when struggling watchmaker Seiko Holdings sacked its president for “dogmatic” management and for not dealing with a prolonged slump at its upscale flagship retail unit Wako.
Japanese boards rarely dismiss top executives, even when the company is struggling. Boards are often criticised by corporate governance advocates for failing to hold management accountable on behalf of shareholders.
Nicholas Benes, a corporate governance expert and head of Board Director Training Institute of Japan, said he suspected a difference in philosophy may have been behind Woodford’s dismissal as a more aggressive British approach to management clashed with a Japanese tendency to put off difficult decisions.
But given how rare it is for a Japanese board to remove a CEO, Olympus’s decision could be seen as a board showing rare mettle, depending on the exact circumstances behind the decision, he said.
“The public investor deserves to know the details of what he was doing wrong, so that it can accept the fact that this was the right decision as opposed to silly childish politics or cultural clash that they should be managing much better,” he said.