We don't pretend to understand exactly what's going on with this, apart from the fact that the sniff test indicates potentially serious trouble. Michael Woodford, the new President of Olympus Corporation, and who is British, was sent summarily packing by the 16-member Olympus Board of Directors last Friday, after a hastily convened emergency meeting. "They told me to catch a bus to the airport," he told The Financial Times.
At issue, apparently, is a detailed memo alleging certain financial improprieties sent by Woodford to Tsuyoshi Kikukawa, Chairman of Olympus, on 11 October 2011—a memo which has subsequently been leaked. In the memo, assuming it is genuine, the President tells the Chairman, "...There has been a catalogue of calamitous errors and exceptionally poor judgement which...has resulted in the shocking destruction of shareholder value of USD 1.3 billion. This has parallels to the recent scandal at UBS where a rogue trader in London lost the bank large sums of money and the senior management resigned in recognition of the lack of adequate controls. In my view, the issues...are, in many senses, more disturbing, in that the transactions were carried out by the most senior officers of Olympus and not by a junior member of staff."
In the memo Woodford calls for the resignation of Kikukawa and one "Mori-san," who I take to be Hisashi Mori, Group President, Group Management Office, Olympus Corporation. That might not be the correct identification.
Please note that I'm just a photography blogger, not a business reporter, and that these reports are all "alleged" for the time being. I surmise that we are so far hearing only limited views of the situation, as Mr. Kikukawa, who has long experience at Olympus, has not yet officially responded.
However, the New York Times, with Reuters, in its Global Business section, said today that Woodford has "delivered a dossier of what he called 'condemning' evidence on Olympus to Britain's Serious Fraud Office in London." Woodford reportedly said, "To be that incompetent is difficult to imagine, which suggests that there is something more sinister going on." The leaked memo suggests both illegal activity (possibly inadvertent) and negligence on the part of officers of Olympus.
Mr. Woodford, who was named President eight months ago, has been with Olympus for 30 years. Since Woodford’s dismissal on Friday Olympus has been suffering a meltdown. The New York Times article says, "Olympus has lost more than $3 billion in market capitalization. The stock sank 22 percent in Tokyo on Monday after losing 18 percent on Friday."
The story is all over the business press, from BusinessWeek to Bloomberg to The WSJ.
Olympus might be learning a certain hard lesson: you don't solve a problem by firing the guy with the gripe (or the goods). It's not even the first time this month I've heard of that lesson having to be learned.
(Thanks to several readers)
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Original contents copyright 2011 by Michael C. Johnston and/or the bylined author. All Rights Reserved.
Featured Comment by Ray Kinnane: "Here is an interview with the man himself, which is a little interesting."
Featured Comment by mark lacey: "Oh please don't let this be the end for Olympus. Of all the camera companies in the world this is one we need to keep, very few constantly think outside the box like Olympus do. Frankly I'd rather lose Canon than Olympus. And you are so right, shooting the messenger rarely helps."
Featured Comment by semilog: "This is incredibly dispiriting. I use the absolutely wonderful Olympus microscopes in my research lab, and I mourn for the fates of the outstanding engineers who will suffer due to the malfeasance or incompetence of their, um, superiors in management."
Featured Comment by Libby: "The Bloomberg video interview with Woodford may be of interest."
Featured Comment by Jayson Merryfield: "Maybe it’s just the accountant-slash-photographer in me, but that memo is actually a thoroughly engrossing read."
Featured Comment by Paul Luscher: "This is certainly a blow to me. I am an enthusiastic user of Olympus cameras, and if this is all true, I am afraid of what it might do to Olympus' reputation—and to the survival of the company itself. I certainly don't wish to end up with an extinct camera system.... But if all this is true—then it's a long way down from the glory days of Yoshihisa Maitani...."
Featured Comment by John Camp: "Astonishing. Seven hundred million dollars disappeared into a Cayman Islands company that nobody can find anymore. If the company is ever found, do we suspect that there might be some self-dealing involved? We do."
Featured Comment by James B: "I'm completely non-expert on Japan and business customs there, but in an increasingly globalised world it appears to me that the Japanese corporate 'stick our head in the sand and hope the problem goes away' attitude displayed by his sacking is increasingly untenable. There have been other recent examples—those cars that needed reworking for safety updates, the lack of admission by Tokyo Electric Power Company about dangerous levels of radiation at Fukushima, and so on.
"I am however puzzled by how Mr. Woodford managed to spend 30 years in Olympus, and be promoted to CEO, without knowing something of the corporate culture there. Perhaps he knew about it, but thought that he could change it, and in that he seems to have over-estimated.
"There are also the owners of AXAM, in receipt of $700M and closing down their company a month or so after. I expect the UK's Serious Fraud Office will be following the money very diligently on that, and they are empowered to use Britain's domestic and foreign intelligence agencies to help them find answers. For everyone's sake, let's hope the trail does not lead straight back to Japan on that one."
Mike replies: My take is that he knew exactly what he was doing but felt for whatever reason that he had to do it—and that otherwise he might be derelict in his duties or might even be accused of criminal conduct down the road. Whatever else the whistleblower is made to suffer, at least he isn't accused of having instigated the malfeasance he's blowing the whistle about.