NPI's Cascadia Advocate

Offering commentary and analysis from Washington, Oregon, and Idaho, The Cascadia Advocate is the Northwest Progressive Institute's unconventional perspective on world, national, and local politics.

Saturday, December 10th, 2011

Olympus must rid itself of the crooks/yes men who betrayed its shareholders and customers

Ten years ago, cor­po­rate Amer­i­ca was rocked by a series of account­ing scan­dals that destroyed one of the world’s largest account­ing firms (Arthur Ander­sen) and led to the pas­sage of the Sar­banes-Oxley Act (Sar­box, or some­times sim­ply referred to as SOX). A num­ber of well-known Amer­i­can com­pa­nies — notably Enron, Tyco, Adel­phia, and World­Com — suf­fered a par­tial or total col­lapse as a result of mis­man­age­ment and breach of fidu­cia­ry duty dur­ing the 1980s and 1990s by their boards and top exec­u­tive, who tried to cov­er up their mis­deeds.

Though Enron and its con­tem­po­raries have since fad­ed from the head­lines, it has become clear in suc­ces­sive years that“creative account­ing” was prac­ticed at more than just a few firms. We do not yet know the full extent of the wrong­do­ing com­mit­ted or per­pet­u­at­ed in the board­rooms of the world’s biggest com­pa­nies dur­ing the “Exces­sive Eight­ies” and “Nifty Nineties”.

But with each pass­ing year, we’re learn­ing more.

The lat­est com­pa­ny to be tar­nished by seri­ous, sub­stan­ti­at­ed alle­ga­tions of account­ing fraud is Olym­pus, a Japan­ese-based mak­er of imag­ing and med­ical equip­ment. Orig­i­nal­ly found­ed in 1919, Olym­pus is near­ly one hun­dred years old.

A cou­ple of months ago, Olym­pus unex­pect­ed­ly fired its chief exec­u­tive offi­cer,  Michael C. Wood­ford, after just two weeks on the job, claim­ing he was “unable to under­stand that we need to reflect a man­age­ment style we have built up in our nine­ty-two years as a com­pa­ny.” (Pri­or to Wood­ford’s selec­tion as chief exec­u­tive, which was engi­neered by Tsuyoshi Kikukawa, Olym­pus had been run exclu­sive­ly by a suc­ces­sion of Japan­ese busi­ness­men).

The strange deci­sion sur­prised ana­lysts, because Wood­ford has been billed as the com­pa­ny’s new glob­al face only days ear­li­er. Some­thing seemed wrong.

And indeed, some­thing was wrong.

It turns out that Wood­ford was fired because he start­ed ask­ing too many ques­tions after he was pro­mot­ed — and because he used his author­i­ty as chief exec­u­tive offi­cer to begin inspect­ing the com­pa­ny’s books, which he cor­rect­ly sus­pect­ed were cooked. Wood­ford’s actions cre­at­ed a huge prob­lem for Kikukawa, who hasti­ly arranged for Olym­pus’ board to get rid of Wood­ford. Fol­low­ing Wood­ford’s ouster, Kikukawa had him­self reap­point­ed as pres­i­dent and chief exec­u­tive offi­cer.

But Wood­ford did not go qui­et­ly into the good night. He deliv­ered a trove of incrim­i­nat­ing data to the press and to author­i­ties, in the Unit­ed King­dom, Unit­ed States, and Japan (Olym­pus has hold­ings in all three coun­tries). And he pub­licly assailed Kikukawa and the board for his unjus­ti­fied sack­ing.

In the wake of his ouster and dis­clo­sure, Olym­pus’ share price dropped like a rock, and sev­er­al invest­ment banks sus­pend­ed their cov­er­age of the com­pa­ny.

Ini­tial­ly, Kikukawa and sev­er­al of Olym­pus’ oth­er direc­tors tried to fight back and refute Wood­ford’s alle­ga­tions; they even threat­ened legal action. Wood­ford dis­missed the threats, telling The New York Times he believed Kikukawa and his cronies were get­ting des­per­ate. And he was cor­rect.

On Octo­ber 26th, Kikukawa resigned as pres­i­dent and CEO, though he con­tin­ued to deny any wrong­do­ing. The com­pa­ny’s board appoint­ed direc­tor Shuichi Takaya­ma as his suc­ces­sor. An out­side com­mit­tee appoint­ed by Olym­pus deter­mined in ear­ly Novem­ber that the exces­sive­ly large merg­er pay­outs that Wood­ford had ques­tioned had indeed been used to cov­er up loss­es on invest­ments.

Olym­pus sub­se­quent­ly fired Hisas­hi Mori, one of Kikukawa’s deputies, who was involved in the account­ing cov­er-up. Takaya­ma admit­ted pub­licly that there had been “inap­pro­pri­ate deal­ings”, but con­tin­ued to down­play the alle­ga­tions, even as the Tokyo Met­ro­pol­i­tan Police launched an inves­ti­ga­tion of the com­pa­ny.

On Novem­ber 10th, Olym­pus dis­closed that the release of its sec­ond-quar­ter earn­ings would be delayed for a sec­ond time while the com­pa­ny com­plet­ed an inves­ti­ga­tion of its own finances. The Tokyo Stock Exchange respond­ed by threat­en­ing to delist Olym­pus’ stock if it failed to sub­mit its report by Decem­ber 14th (which is less than a week from today).

Major share­hold­ers, mean­while, began join­ing Wood­ford in demand­ing that the entire board step down. Wood­ford — who remained a board mem­ber fol­low­ing his ouster, because only share­hold­ers can dis­miss direc­tors — announced in mid-Novem­ber that he would return to Japan to con­front Olym­pus’ board at its next reg­u­lar­ly-sched­uled meet­ing.

Pri­or to his arrival, Olym­pus announced that Kikukawa, Mori, and Olym­pus audi­tor Hideo Yama­da had all left the board, in addi­tion to hav­ing depart­ed from the com­pa­ny’s exec­u­tive suite. Olym­pus’ remain­ing direc­tors also made pub­lic a pledge to fol­low suit and leave once the com­pa­ny had recov­ered from the scan­dal. But they pro­vid­ed no time­frame for fol­low­ing through on their promise.

After a dis­sat­is­fy­ing meet­ing with the board, Wood­ford announced on Novem­ber 30th that he would resign as a direc­tor of Olym­pus, but vowed to work with stake­hold­ers and share­hold­ers to con­struct a new board. Wood­ford had pre­vi­ous­ly offered to return to Olym­pus as its chief exec­u­tive offi­cer to lead a turn­around, but the board evi­dent­ly had no inter­est in rein­stat­ing him.

On Tues­day of this week, an out­side pan­el appoint­ed by Olym­pus to inves­ti­gate the scan­dal released its find­ings, exco­ri­at­ing Kikukawa and his cronies and vin­di­cat­ing Wood­ford. The report described Olym­pus’ most recent man­age­ment as “rot­ten to the core”. It “infect­ed those around it”, the inves­ti­ga­tors con­clud­ed.

Wood­ford praised the report, and renewed his call for change in a state­ment to employ­ees, share­hold­ers, and the press.

Let us hope that the find­ings announced today by the third-par­ty pan­el will help cat­alyze pos­i­tive change at Olym­pus. My over­rid­ing con­cern is the wel­fare of Olym­pus employ­ees and their fam­i­ly mem­bers, of Olym­pus’s long-term share­hold­ers, and of Olym­pus’s cus­tomers. That con­cern will be first in mind as I care­ful­ly eval­u­ate the con­tent of the report that was issued today.

The pan­el’s report has made one thing painful­ly clear: the mas­sive scale of the malfea­sance from which the present direc­tors and statu­to­ry audi­tors per­sis­tent­ly avert­ed their gaze. I sought to call atten­tion to the wrong­do­ing through a series of six let­ters in Eng­lish and Japan­ese, copied to all the mem­bers of the board, and through the sub­mis­sion of a damn­ing report by Price­wa­ter­house­C­oop­ers. Yet not a sin­gle direc­tor stood up in sup­port of my efforts to expose what had tak­en place.

Olym­pus and its share­hold­ers would have incurred far less dam­age if the cur­rent direc­tors had act­ed appro­pri­ate­ly on the clear signs of mis­con­duct that I had explic­it­ly brought to their atten­tion. Now, the work of revi­tal­iz­ing Olym­pus can pro­ceed only under the lead­er­ship of untaint­ed exec­u­tives.

We at NPI thank Mr. Wood­ford for his courage and his com­mit­ment to Olym­pus’ well-being. NPI has been a loy­al Olym­pus cus­tomer for years, so this scan­dal is of real con­cern to us. (We use Olym­pus cam­eras to pro­duce our pho­to­jour­nal­ism and Olym­pus recorders to cre­ate pod­casts and tran­scribe inter­views).

We believe that Mr. Wood­ford is the right per­son to lead a turn­around of Olym­pus. Thanks to his years of expe­ri­ence as a man­ag­er, he knows the com­pa­ny inside out, and he cares about its future. But more impor­tant­ly, he has demon­strat­ed that he is a man of integri­ty. He dared to speak the truth when no oth­er Olym­pus direc­tor would. In choos­ing to chal­lenge Kikukawa, he took a stand for the com­pa­ny’s share­hold­ers and cus­tomers. And last week, he sen­si­bly resigned from Olym­pus’ board after con­clud­ing that it was­n’t going to lis­ten to rea­son.

We agree with Wood­ford that Olym­pus can recov­er from this dis­as­ter — but only if it rids itself of the crooks and yes men who betrayed its share­hold­ers and cus­tomers.

As he put it: “Olym­pus remains a great com­pa­ny that boasts a proud his­to­ry, supe­ri­or human resources, dis­tinc­tive prod­ucts, and unpar­al­leled tech­nol­o­gy.”

As loy­al and sat­is­fied cus­tomers, we want to see Olym­pus get back up on its feet, rebuild its rep­u­ta­tion, and move for­ward into a new era under new man­age­ment and a com­plete­ly new board of direc­tors.

We will con­tin­ue to mon­i­tor devel­op­ments in the com­ing weeks and months, and sup­port Mr. Wood­ford’s efforts to make Olym­pus whole again.

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One Comment

  1. Inter­est­ing to see you writ­ing on this sto­ry. I too am a loy­al Olym­pus cus­tomer (love my Pen E‑P3 and the three Olym­pus micro 4/3rds lens­es I have to go with it) and have been fol­low­ing this sto­ry all fall. I share your hopes for the future of Olym­pus.

    # by Aaron Pailthorp :: December 10th, 2011 at 2:14 PM