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whistle-blowing

Mr. Woodford’s Revolution

December 2, 2011

(355 words)

It’s one thing to start a revolt and quite another to lead a revolution.  Michael Woodford, the former Olympus CEO, will be finding this out soon enough.  The revolt spilled out publicly with his firing Oct. 14, but Mr. Woodford had started it privately with a request for the resignations of Tsuyoshi Kikukawa, then Olympus Chairman, and others directly involved in some dubious transactions.  Upon his firing, Mr. Woodford promptly packed up his documentation and went to London, and from there, investigative bodies and numerous news outlets,  seemingly speaking to anyone with a notebook and pen.  Last Friday, he returned to Tokyo for the Olympus board meeting, of which he was still a member.  Triumphant, at a news conference, he praised the news media for providing the pressure that forced Olympus to admit that the transactions were dubious and the resignation of  executives seen as being directly involved, particularly Mr. Kikukawa.

Now, Suichi Takayama is president, and Mr. Woodford is still unhappy because Mr. Takayama was as a member of the board that showed little hesitation dismissing him.  Mr. Woodford feels that Olympus needs an entirely new board and he has resigned his seat so that he may  lead an outside takeover of the company.  This is a bold objective and possibly one that is too far to achieve.  Many stakeholders may agree with his assessment of the transactions, which are still being investigated, but the whistle-blowers are seen as a troublemakers as often as they are heroes — they may be right, but their message is often unwelcome, particularly when, as in this case, the company sheds huge amounts of market value.

In the end, Mr. Woodford may have to settle for reinvigorating interest in corporate governance in Japan and retire to a life of good works at non-profits.  In discussing his legal bills recently, he seemed to hint at a lawsuit.  A book deal could also offset some of his legal fees, but there’s no guarantee that there will be lasting interest in this adventure, particularly if no yakuza are involved and it turns out that it was simply corporate crime — more “Wall Street” than “Goodfellas.”

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Noisy CEOs

Olympus Questions Still Unaswered

November 15, 2011

(516 words)

Just when a pleasant autumn wind was rising, Olympus blew up with a scandal that — depending on how it’s handled — may seriously degrade the foreign investor view Japanese corporations.  Although, it appears that Olympus may avoid de-listing, but there’s a lot it still hasn’t answered.

The details can be had elsewhere, but the Cliffs Notes summary is that Micheal Woodford, a long-time employee and the first foreign CEO of Olympus was unexpectedly and with remarkable speed fired by the board of directors for not having cross-cultural understanding.  It quickly became obvious that what he could not understand was why in the world Olympus would squander billions of dollars on companies that existed almost entirely on paper and nothing more.

Amazingly, Olympus stuck to its position, saying that there was nothing wrong with its acquisitions and that it was right to fire Mr. Woodford.  To support this statement it offered no evidence, but instead tried the “Blame the Employee” tactic.  This tactic might have worked at one time, but now largely results in self-embarrassment, particularly if the employee was your CEO and he has copies of all the relevant corporate documents in his possession.

For Mr. Woodford, the documents were crucial in making his case to the news media and investigative authorities in the U.S. and Britain.  He didn’t have to take his documents to the news media, but it was an effective way to pressure Olympus to move things along.  And, boy, things moved along — a week ago Olympus admitted that the deals were to cover up bad debts from the 90s.

Olympus seemed to think that this was a good explanation.  Except that it wasn’t.  The press and analysts reacted with, “Holy shit, you’ve been doing this for 20 years?  What else are you hiding?” (I’m paraphrasing.)  Apparently, holding bad debts until a more appropriate time was an accepted practice back then, but this would indicate that Olympus has institutionalized corruption for more than two decades.

Now, with this much money involved in this particular manner (disappearing companies in the Caymans), it made sense that the next question to be asked was:  How much of the cost of these deals was to cover postponed bad debts and how much was for services?  There’s no immediate strong evidence of extortion, or the involvement of organized crime or even disorganized crime, but Olympus’ story just has too many wholes in it for the question not to be asked.  Of course, this type of  crime — high-dollar and high-collar – doesn’t need yakuza or the mafia to be involved, as US companies have so ably demonstrated.  Bernie Madoff wasn’t an organized crime type, but he was organized and he committed a huge crime.

For now, we are left with an intriguing story that has only become more intriguing, because of its opaqueness.  Mr. Woodford seems to have weathered the ad hominem attacks that are always directed at whistleblowers.  There is even call among some Olympus investors to bring him back as CEO, but that is still over a distant horizon and  investigative wheels have a tendency to turn slowly in Japan.

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