Olympus Epic Fail
The scale of the failings in corporate governance at Olympus is breathtaking. The company has misled, shareholders, banks, auditors, stock markets, Japan’s government, and staff about the true state of its finances over a 20 year period. It is Corporate Social Irresponsibility on the grandest of scales.
According to Jon Snow at Channel4 News, “Prime Minister Noda is warning that the row threatens to contaminate Japan’s reputation for a ‘rules based market economy’. The scandal may make fund managers, banks, and others wary of investing or lending to Japanese firms.
The lurid headline this morning “Olympus investment losses may have exceeded $1 billion” appeared after another 20% fall in the shareprice.
Josh Shores of the major institutional shareholders, Southeastern Asset Management, which holds about five percent of Olympus Corporation, wants the whole board to step aside and resign. “Ignorance is no defence. If you were there and not aware of it, then you were incompetent. If you were there, and aware of it without asking tough questions, then you were negligent. Either way, you need to leave”.
The disclosures about Olympus’s accounts, and mergers, have made it vulnerable to prosecutions for fraud.
Michael Woodford said: “This is a very big day. The big questions now are: who helped us – which outside companies? And what monies have they received?” Calling for the remainder of the Olympus board to resign, he said: “The position of the board and non-execs is untenable now.” Press reports draw parallels with other corporate scandals 20 years ago, and hint at links to Japanese organised crime.
The Olympus board may have been economical with the truth about where the fees for acquisitions had gone, but there may be more uncomfortable and damaging revelations which hit the reputation of its auditors – KPMG, Ernst and Young, and Japanese banks and market regulators.
However its commitment to Corporate Social Responsibility is increasingly hollow, as its senior executives concealed its losses, hid generous fee payments and doctored accounts. In short it has misled most of its external and internal stakeholders.