Culture | The Olympus scandal

Paying a price for doing what’s right

What really happened at Japan's premier camera-maker

Exposure: Inside the Olympus Scandal: How I Went from CEO to Whistleblower. By Michael Woodford. Portfolio; 258 pages; $27.95 and £20. Buy from Amazon.com, Amazon.co.uk

IN APRIL 2011 the Japanese camera-maker Olympus appointed its first foreign president, Michael Woodford, a Briton and 30-year company veteran. Six months later he was sacked after questioning $1.7 billion in suspicious transactions. His rapid ascent and downfall for doing the right thing is nicely told in this first-person whodunnit.

The story began when Olympus bought three tiny, profitless companies in 2008 for $800m, only to write down three-quarters of their value by the end of the financial year. And it gave nearly $700m in “advisory fees” to an entity in the Cayman Islands whose ownership and legal standing were unclear. When Mr Woodford learned of this (after it was reported in a small Japanese business magazine, but never followed up by the mainstream press, stock analysts or regulators), he sought answers from the firm’s chairman, Tsuyoshi Kikukawa; to no avail.

“Exposure” treats readers to a fascinating inside look at bare-knuckled corporate governance. Mr Woodford informs the board of his concerns, but is met with silence. He tells the company’s auditors. He hires forensic accountants. He calls for the resignation of the chairman, who had hand-picked him as president after he had ably managed the European operations. At a board meeting that was called to discuss the strange deals, the chairman marches in and reads out a resolution calling for Mr Woodford’s dismissal. “All 15 members simultaneously raised their hands in approval,” Mr Woodford writes, like “children in a classroom.”

Mr Woodford then finds he has bigger troubles than losing his job; he fears for his life. No one knows where the money has gone, but there are hints that Japan’s mob, the Yakuza, may be involved. Alone and ignored, Mr Woodford fights back with the only tool at his disposal: the media.

The story grows more surreal. Olympus tells lies. The Japanese press, politicians and regulators are weirdly docile even as the story makes front-page news worldwide and the company’s share price falls by 80%. Meanwhile, only shareholders can remove a director, so although Mr Woodford is stripped of his titles, he is still on the board—a perch from which he tries to clean up the company. When that fails, he resigns and tries to bring in a new board with the help of outside investors. That fails too, when the forces of old Japan—Olympus’s main bank and biggest shareholder, SMBC, and a group of cross-shareholding firms—close ranks to protect the company from more meddlesome outsiders.

What actually happened to the money? Mr Woodford’s description of the financial fraud is exceptionally clear. It was not the mob but managers, who tried to use accounting write-offs to cover up investment losses dating back from the 1990s that would have blown a hole in Olympus’s balance-sheet.

The kind of integrity and courage that Mr Woodford displayed is unusual; perhaps his self-worth did not depend on him having a powerful job. Growing up poor in Liverpool and leaving school at age 16, Mr Woodford also knew at first hand how uncertain life could be. He did not see risking it all as losing it all.

“Exposure” should be compulsory reading for company directors and MBA students. But they should take his self-justifications with a pinch of salt. It could be argued that Mr Woodford was naive to confront the chairman without having first amassed internal allies. If he had played a discreet, long-term hand rather than force the issue, could he have cleaned up the company more effectively and kept his job? Maddeningly, the author is devoid of introspection on the big issues.

Instead, he wraps himself in self-righteousness and takes potshots at the hapless men who failed to support him, a stance that may be morally justifiable but grows repetitive. Nor does he really get into the mind of Mr Kikukawa and his allies to find out what they were thinking. In their eyes Mr Kikukawa was protecting a great company and its employees without personal gain; this was a victimless accounting fudge; and after spending a decade trying to get rid of the mess, they took the bold step of choosing a foreign boss to put the company back on the right course—only to see their trust betrayed.

Mr Woodford stands tall as an example of leadership. Read his book and ask yourself: would you do the same thing—or would you just shut up and go to Davos?

This article appeared in the Culture section of the print edition under the headline "Paying a price for doing what’s right"

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