There are elements of this Olympus scandal that would make Kenneth Lay blush.A 92-year-old blue chip company falsified financial statements for two decades, possibly with the cooperation of auditors, to hide over $1 billion in losses, which weren’t uncovered until the company’s first-ever foreign CEO took a second look at the accounting.
This was a big, institutional, long-term fraud.
This scandal is an indictment of Japanese corporate culture, which has been criticised for group-think and the unwillingness of individuals to speak up.
But it’s also a personal indictment of former chairman Tsuyoshi Kikukawa. The 47-year company veteran, who made his bones working in New York, was known as a risk-taker and an innovator. In other words, he was a “western” executive.
There is also the troubling implication from President Shuichi Takayama that these practices were common in Japan after the bursting of the asset bubble.
Finally everyone has been asking whether missing funds ended up in the hands of “anti-social forces,” or the Yakuza, which is a common destination for missing funds in Japan.
Here’s a timeline:
Early 1990s: After losing money due to yen strength, Olympus creates a special purpose vehicle to buy battered securities at market value. The cost to fund this scheme would increase over time.
2006-2008: Olympus spends $773 million to buy three tiny domestic startups, which had no relation to the company’s core business.
2008: Olympus pays a $687 million advisory fee on its $2.2 billion purchase of British company Gyrus.
October 2011: It takes new foreign CEO Michael Woodford just months to identify these fraudulent payments. Woodford is fired. The stock starts tanking. The chairman resigns.
November 2011: New president Takayama comes clean about the fraud. He blames former chairman Kikukawa as well as Vice-President Hisashi Mori and internal auditor Hideo Yamada. The stock price closes down 70% in three weeks.
Going forward Kikukawa, Mori, Yamada and others face a criminal investigation. Depending how far the fraud has spread through the corporation, Olympus could be finished as a company.
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