An influential investment advisory firm has told Olympus shareholders to reject the Japanese company's nominees for key board positions, citing their connections with creditors or their competence.
The firm's management, attempting to rebuild its reputation following a $1.7 billion cover-up scandal, has recommended former executives of its main banks as chairman and director.
But, in a report to shareholders, ISS Proxy Advisory Services said: "The appointment of former executives of main banks raises concerns that bank interests will be prioritised over shareholder interests."
Olympus is due to propose the nominations and its corrected financial statements at an extraordinary general meeting of shareholders on April 20.
It has nominated Yasuyuki Kimoto, a former senior managing director of Sumitomo Mitsui Banking, and Hideaki Fujizuka, a former executive officer of Bank of Tokyo-Mitsubishi UFJ, as chairman and director.
The ISS report, dated April 6, said: "Although neither currently holds a formal position at the respective banks, their loyalty to their long-time employers is not in doubt."
The advisory firm also said that president nominee Hiroyuki Sasa, a 30-year veteran in Olympus's medical equipment division, is "not a business manager with a proven track record of turning around companies."
Sasa could not be recommended at a time "when the firm is faced with enormous tasks ranging from restructuring and financial stabilisation to restoration of investor trust," the report said.
Olympus rejected the criticism, saying its board would be "independent" and that there were "biases" in the ISS report.
The advisory firm had no "concrete basis for (its) doubts," Olympus said.
"We are...confident that appropriate management decisions can be expected with a view to the maximisation of Olympus's corporate value and the common interest of shareholders," it said in a statement.
Kimoto and Fujizuka would be "internal" directors held to account if they engaged in activities that did not benefit Olympus, it said.
Sasa, Olympus said, was an experienced executive with a background in the firm's core medical business.
However, the company-approved slate of board nominees has already been criticised by foreign shareholders who said creditor banks have exerted "undue influence" on the lineup.
In an open letter to Olympus in late March, nine institutional investors, who collectively hold up to a 30 percent stake, said an independent chairman should be selected to head a board that would represent broad interests.
Olympus suffered losses stemming from bad investments made since the 1990s, which were brought starkly into focus by ousted president Michael Woodford.
The Briton went public after being sacked in October when he raised concerns over the losses, which were moved off the company's balance sheet.
Olympus eventually admitted wrongdoing after commissioning a probe by a panel of outside lawyers and several implicated executives were forced out, denting confidence in Japan's corporate governance.
Last month, Japanese police arrested or charged numerous people over allegations they falsified Olympus's balance sheet, including former president Tsuyoshi Kikukawa, former senior executives Hideo Yamada and Hisashi Mori, as well as three financial advisers.
The same charge was also laid against Olympus as a corporate entity.
Despite support from foreign stakeholders, Woodford abandoned his campaign to get his job back, citing a lack of enthusiasm among Japanese institutional shareholders, who are traditionally unwilling to rock the corporate boat.
The scandal was an embarrassment for the company, but Olympus has maintained that its sales have not suffered as a result.