By Kevin Voigt
Dec. 2, 2011
Editor’s note: Former Olympus CEO Michael Woodford’s comments for this story were taken from interviews with CNN and a talk he gave November 25 at Tokyo’s Foreign Correspondent’s Club. Olympus company officials declined to comment on Woodford’s version of events.
(CNN) — When the ex-CEO of Olympus talked about the saga that had befallen the Japanese company, the story he spun was less Harvard Business Review and more Pulp Fiction.
“I thought I was coming to run a health care company … and a consumer electronics company, and I find myself in this John Grisham novel,” Michael Woodford said last week at the Tokyo Foreign Correspondent’s Club. “Flying to New York to meet the FBI, references to organized crime, boardroom conflicts, character assassination — the whole thing has been a bizarre way to live.”
Perhaps Stieg Larsson is the closer comparison. The Olympus boardroom drama centers around $1.4 billion in losses that company officials now admit were hidden from shareholders and regulators through shady accounting. But much like Larsson’s “The Girl with the Dragon Tattoo” — the first of his blockbuster trilogy that centers around the work of the fictional investigative journal, Millennium, peering into financial misdoings — the Olympus conflict wouldn’t have surfaced were it not for the work of a little known magazine in Tokyo.
“The deeper and deeper we pursued this matter, we could find (there was) a big fraud happening,” said Shigeo Abe, publisher of FACTA, a Japanese publication whose investigative article in July questioning exorbitant fees Olympus — a maker of cameras and medical equipment — paid consultants and extravagant purchase prices of three small companies.
That article, and a subsequent follow-up in September that alluded to possible Japanese mafia involvement, sparked a drama that would find Woodford and three other top Olympus executives out of a job, their company losing billions of dollars in share value. And Olympus — a venerable company emblematic of Japan Inc.’s phoenix-like rise from the ashes of World War II — now faces the possibility of de-listing from the Tokyo Stock Exchange. The alleged accounting tricks mirror the shenanigans of “zombie corporations” that littered the Japanese financial landscape in the post-bubble 1990s.
A five-page expose in FACTA — a small circulation magazine that has only nine-staff — on July 20 raised questions over advisory fees of $687 million paid in 2008 for the purchase of Gyrus, a UK medical instruments firm. The article also questioned the $773 million paid for three small Japanese companies — a face cream maker, a plastic container maker and a recycling business, each with fewer than 50 employees.
The article made no splash when it hit. Although the Japanese media ignored the Olympus scoop, a copy found its way into the hands of one important reader: Woodford.
The FACTA article and its allegations of a $1.4 billion cover-up — a figure more than three times the company’s 2010 profits, according to Woodford — created a behind-the-scenes clash that erupted in a very public way with Woodford’s recent dismissal. The boardroom squabble centered on Woodford — the company’s first foreign president and CEO for just two weeks — and former Chairman Tsuyoshi Kikukawa and his right hand man, former executive vice president Hisashi Mori.
The article also questioned why Olympus chose a “bottom-ranking foreign executive” from 25 candidates. Abe, editor of FACTA, is blunt about why he thinks the choice was made: “Mr. Kikukawa’s aim was to keep the fraud in secret under the foreign president because Mr. Woodford could not speak and read Japanese.”
“Perhaps if a Japanese guy took over, he would have turned a (blind) eye to it — that’s history, let’s move on,” said Peter Tasker, an analyst at Arcus Research in Tokyo. “There’d be no hole in the balance sheet, there wouldn’t be involvement of the FBI and (the UK) Serious Fraud Office, everything would be hunky-dory.
“Woodford basically kicked this hornet’s nest.”