How Olympus was almost brought down by one of the worst corporate scandals

How Olympus was almost brought down by one of the worst corporate scandals

When its CEO learnt of its financial losses, he went on a collision course with the board. Inside the Storm looks at what went wrong and how Olympus recovered.

How Japanese giant Olympus' first foreign CEO Michael Woodford exposed his own company's US$1.7-billion fraud, taking on the entire board - and a culture of deference and obedience. READ the full story.

TOKYO: He was the first non-Japanese chief executive officer of electronics giant Olympus. But barely two weeks after his appointment, Englishman Michael Woodford was fired.

His crime? Attempting to expose a US$1.7 billion (S$2.3b) fraud within the company.

At an emergency board meeting that he thought was going to be about the dubious deals the company had made, he was silenced and forced to leave on the spot instead.

“All the people around the table put their hands up, supporting the motion that I be dismissed,” he recalled.

“I wanted to speak at the board meeting. I had documents prepared the night before, questions I wanted to ask, but I was told I wasn't allowed to speak.”

Minutes later, the loyal employee of 30 years was also told to vacate his Tokyo apartment by that weekend.

The Olympus scandal of 2011 ended up as one of the biggest cover-ups of financial losses in Japanese corporate history.

It prompted an 82 per cent share price dive within a month, the resignation of the board members and the arrest of several Olympus officials for fraud – almost destroying the company that was started in 1919.

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Whistle-blower and former Olympus CEO Michael Woodford.

The story of how this Japanese maker of cameras and medical equipment clawed its way back from its crisis and regained consumer trust, pledging to “never again engage in improper activities”, is told in Inside the Storm: Back from the Brink – a series about legacy companies that have rebuilt themselves from near collapse.


Most people think Olympus only makes good mirrorless cameras, but it is “probably the best” medical equipment franchise in the world, described Mr Woodford, who compared the company to the “Google of the endoscope businesses”.

During Japan’s boom years in the 1970s, Olympus expanded internationally with three core products: Microscopes, cameras and medical devices.

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Medical equipment became one of Olympus' core divisions.

Before the scandal, then CEO Tsuyoshi Kikukawa was a respected leader instrumental in pushing the company forward in the digital era.

Olympus had a good reputation, and he brought a Western-style management to the company and was lauded for that, said Singapore Management University assistant professor of strategic management Anne-Valerie Ohlsson-Corboz.

“He was a very charismatic person, very well liked,” said the academic, who uses Olympus as a case study for her students. “And the company invested heavily in innovation, a lot more than the other Japanese companies of that time.”

It was perhaps fitting that in 2011, he appointed Olympus' first foreign president and chief operating officer, Mr Woodford, who had made his name by growing the company's international medical business.

Impressed by his accomplishments, Mr Kikukawa was confident this foreigner could do well at its Tokyo headquarters.

Mr Woodford recalled: “He was a very charming man. He talked to me about my family, and he knew them all by name. And then he said he had been running the company for 10 years (and) didn't think he had changed it enough.

“(He) felt I could do what was necessary … We didn't discuss terms or anything; I just said yes.”

But the new president soon realised that he lacked the power to make fundamental decisions.

Said Mr Woodford: “He controlled all the levers, and the board were literally puppets, and he was the puppet master. There were no ifs or buts … Whatever Kikukawa said was the course to be followed.”


Less than four months after his appointment, Mr Woodford stumbled on a secret about Olympus in local magazine Facta, which had raised red flags about possible accounting irregularities.

Hoping to get to the bottom of the allegations, he got a lunch appointment with an unwilling Mr Kikukawa and his right-hand man, executive vice-president Hisashi Mori.

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Former Olympus chairman Tsuyoshi Kikukawa.

Ushered into a boardroom, Mr Woodford was given a tuna sandwich wrapped in cling film, the significance of which was not lost on him. “In Japan, you’d never leave the cling film on,” he explained.

The message to me – and many of the messages in Japan are non-verbal communication – (was that) Kikukawa was the luxury sushi platter at Olympus, and I was the manky tuna sandwich, and I shouldn't forget it.

Without uttering a word, Mr Kikukawa had made it clear that a foreigner had no business interfering in Olympus’ most sensitive affairs. He also said, smiling away, that Mr Woodford should be “too busy to worry about these domestic issues”.

Later, Mr Woodford spoke to Mr Mori alone concerning the allegations about three acquisitions, including a mail-order face cream company and a microwave cookery company, as well as a US$687 million payment in advisory fees to an unknown Cayman Islands company.

Mr Mori ignored his questions and retorted: “I work for Kikukawa-san. I’m loyal to Kikukawa-san”.

As the company president, Mr Woodford knew it was his responsibility to sign off on the accounts and answer to the auditors, so he tried to find out more, despite the deterioration in his relationship with the two men.

“I could feel the contempt oozing from them. I’ve never felt such loathing in my life,” he recalled.


When he kept getting stonewalled, however, he was at a loss for how to deal with the situation, as shareholders, the financial institutions and the media did not seem interested to address the issues plaguing Olympus.

This took a toll on his health. He took to drinking to cope with the pressure, had lost weight and was having trouble sleeping, often resorting to sleeping pills.

Mr Praveen Nair, a psychologist and senior consultant at Raven Counselling and Consultancy, said Mr Woodford was likely to have been undergoing cognitive dissonance, that is to say, holding two contrasting beliefs at the same time.

“If you've worked in a company for 30 years, you’d feel a very close affinity with that company,” said Mr Nair.

“And to have that company suddenly do something that you’re not familiar with, or against your personal beliefs – that's almost akin to having a family member go against you.”

This would create feelings of tension that could be manifested in mood swings, sleeplessness and an inability to sustain positive relationships, he added.

Worse news was to come for Mr Woodford: Facta had published a follow-up article containing more allegations against Olympus, including possible links to organised crime.

“What shocked me was these transactions were linked to anti-social forces, the euphemism for the mafia, the Yakuza … people with tattoos and missing finger digits (who) might want to hurt me or, worse still, hurt my wife or, even worse, hurt my children,” he said.

“I was a businessman. I sent out mission statements, answered emails and visited factories. I had no knowledge of how to cope with organised crime.”


Despite his questions, Mr Woodford was appointed as CEO. It did not stop him from writing an email challenging Mr Kikukawa and the board by asking the then company chairman and Mr Mori to resign.

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Mr Hisashi Mori.

That was when the emergency board meeting was convened and he was sacked. “They told me to catch a bus to the airport,” he told the Financial Times.

After he left the Olympus building, he returned to his apartment, where he noticed several muscled men at the reception. He suspected they were yakuza and felt intimidated.

He packed his bags and arranged to meet then Financial Times correspondent Jonathan Soble at a cafe to brief him about “hundreds of millions of dollars missing” from Olympus.

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Former Financial Times correspondent Jonathan Soble.

“He was worried that he was in danger, that people might be following him or worse,” said Mr Soble. “He presented me with a binder full of evidence to back up his case, and then he went to the airport.

He took a suitcase and said, ‘I want to get on the first plane that I can. I don't feel safe.’

When Mr Woodford got off that plane at Heathrow Airport 10 hours later, his wife was there with a copy of the Financial Times she had bought at the airport. His story was on the front page.


Olympus’ response was that he did not understand Japanese business practices.

The new president, Mr Shuichi Takayama, said: “If you ask me whether the fees were proper or not, I’d say that the situation would’ve warranted those fees, and thus they were appropriate.

“Mr Woodford revealed company information that he had received from the executive committee. We’re extremely angry at what he did.”

The international media began to report Mr Woodford’s allegations, so it was extraordinary that Olympus was denying the losses, said former BBC News correspondent Mark Worthington, now the managing director (Singapore) of public relations firm Klareco Communications.

In that situation, noted Mr Worthington, the worst thing to do was to be seen as “denying, lying, covering up”. He added: “That was hugely damaging to its reputation.

The impact of this scandal … in terms of its finances (and) its staff was colossal and couldn’t be underestimated.  If we start on a reputational level, (the company) became almost the poster child for corporate fraud, corporate failure, corporate cover-up.

Mr Woodford was vindicated two months after his sacking. An independent panel appointed by Olympus’ board and headed by former Supreme Court judge Tatsuo Kainaka said the “core part of management was rotten”, having concealed business and investment losses, reported BBC News.

The panel blamed Mr Mori and former internal auditor Hideo Yamada for cooking the books.

Olympus eventually acknowledged that it had concealed investment losses since the 1990s by moving them to an offshore fund in a practice called “tobashi” – a transfer of assets so as to conceal losses.

Messrs Kikukawa, Mori and Yamada were sentenced to jail, and a Tokyo district court ordered Mr Kikukawa and five other board members to pay the company more than US$500 million.

WATCH: How Woodford exposed one of Japan's worst corporate frauds (4:50)


The case raised questions about how corporations were managed in general, with Japan's financial regulators having tolerated the tobashi practice.

“The Olympus case did for Japan what Enron did for the United States. So every time you have a scandal, policymakers, shareholders and the board will question the way business was always done and whether it should be done this way,” said Asst Prof Ohlsson-Corboz.

“Enron changed governance policies, board liabilities and so on in the US. Olympus did the same thing for Japanese businesses.”

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A new board took over the reins and set out to restructure the company, changing not only its communication processes, but also the way it was governed.

Said Mr Worthington: “When you’re that broken, and your reputation is that low, you're not going to be able to communicate your way out of that situation. You have to demonstrate what you're doing.”

The company ensured that, among other things, it had external auditors who were really independent and not linked to the board, noted Asst Prof Ohlsson-Corboz.

Olympus has since made an impressive comeback. Its share price is up almost tenfold from its lows in 2011, thanks to its strong sales of medical devices.

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Mr Woodford's book detailed his whistle-blowing role in the indictment of the former Olympus board.

As for Mr Woodford, he published the book Exposure: Inside the Olympus scandal, which detailed his whistle-blowing role. He is now a consultant to many large companies, advising them on how to prevent the same misdeeds from happening.

Despite the scandal, the public perception of Olympus as a hi-tech manufacturer has not faded, and its team is creating new products to keep the brand relevant.

“Six years on, it still has a big share of the market in endoscopy and microscopy. And it’s doing very well in its camera business,” said Asst Prof Ohlsson-Corboz. “It was able to turn around and do well again.”

This season of Inside the Storm: Back from the Brink tells the stories of how industry giants Marvel, Olympus, Philips and Nissan rebuilt themselves from near collapse. Watch the series online at this link, or catch episodes on Channel NewsAsia every Wednesday at 8pm SG/HK.

Source: CNA/dp