Olympus Corp Chairman and President Tsuyoshi Kikukawa stepped down on Wednesday in response to a widening scandal over dubious acquisition deals, as sources said Japan's securities watchdog was looking into the 92-year-old firm's past dealings.
Olympus fired its British president and chief executive Michael Woodford on Oct. 14, charging that he failed to understand the company's management style and Japanese culture, and chairman Kikukawa took over his role.
Woodford -- who joined the company in 1980 -- said he was sacked for questioning a massive advisory fee paid in a 2008 takeover as well as other deals, and for urging Kikukawa to step down.
Woodford said on Wednesday that Kikukawa's resignation was "a start" but added that Senior Executive Managing Officer Shuichi Takayama, a 41-year company veteran who was appointed to replace Kikukawa as president, had also failed to demand explanations about hefty fees linked to acquisitions.
Takayama chided Woodford in a news conference, however, saying the company was extremely angry that the former CEO had revealed internal information while he was still a director.
Kikukawa said in a separate statement that he had stepped down to restore confidence in the company under the new management and that he would continue to work as a director.
The Olympus scandal could re-ignite debate on what critics say is a deep-seated weakness of Japanese management -- a lack of strong independent oversight of boards that risks inefficient use of capital and gives shareholders' rights short shrift.
A small Japanese business monthly Facta first raised red flags about Olympus M&A deals in August and the Securities and Exchange Surveillance Commission (SESC) started paying particular attention to the company around that time, said the sources, who were not authorised to discuss the matter publicly.
SESC officials declined to comment on the probe, as did an Olympus spokeswoman.
Shares of the camera and endoscope maker fell 7.6 percent on Wednesday and have lost more than half their value since Woodford was sacked.
Investors' initial reaction to the announcement, which came after market close, was tinged with scepticism.
"For now the stock should rebound on his resignation, but in reality nothing has been cleared up. There are still many investigations left to come," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.
"Nothing changes with this," said an analyst that covers the firm who is not authorised to speak to the media. "It doesn't clarify anything about the lack of details, nor anything about the responsibility of the person said to be at the heart of (the scandal)."
The former British CEO said he was fired for questioning a $687 million payment to advisers in the $2.2 billion takeover of medical equipment maker Gyrus in 2008. At about 30 percent of the acquisition price, that set a record in M&A fees.
A senior Japanese lawmaker on Tuesday called for probes by financial and securities watchdogs and urged Olympus to explain the fees, which could risk shareholders losing confidence in Japan.
"At least the fees were outlandish. The company must explain the whole circumstances behind the incident," said Tsutomu Okubo, deputy policy chief of the Democratic Party of Japan.
While Okubo suggested that parliament should look into the matter, Japanese politicians' and the media's initial reaction to the scandal was remarkably muted.
But in a sign of growing alarm over potential damage to Japan's credibility, another ruling party lawmaker has asked the upper house financial affairs committee to question Tokyo Stock Exchange officials and regulators on Olympus.
Takayama, 61, joined Olympus straight from an engineering high school in 1970 and has served on the company's board since 2006 after holding several senior managerial positions.
Ex-CEO Woodford has said he was now talking to the U.S. Federal Bureau of Investigation and Britain's Serious Fraud Office.
Woodford has identified the advisory firms involved in the Gyrus takeover as New York-based AXES America LLC and AXAM Investment Ltd in the Cayman Islands.
Japan Securities Finance, a stock lending brokerage, on Tuesday put Olympus on a list of shares for which caution is advised on margin trading due to a surge in such trading.
And in a heads up to investors, the Tokyo Stock Exchange also started to announce margin trading positions on a daily basis. (Additional reporting by Hideyuki Sano, Nathan Layne, Isabel Reynolds and Taiga Uranaka; Writing by Linda Sieg and Tomasz Janowski; Editing by Edmund Klamann)