Chat with AI
Deck 7: Blowing the Whistle
Full screen (f)
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
Question
OLYMPUS: PAYING A PRICE FOR DOING WHAT'S RIGHT?
Movies like Silkwood and The Insider have portrayed whistle-blowers as lone heroes on the front line or in middle management, working against corrupt organizations at great personal risk to their own well-being. At Olympus Corporation, the Japanese camera and medical equipment manufacturer, the story was dramatically different. The whistle-blower in this case was recently appointed Chief Executive Officer (CEO) Michael Woodford.
As the former head of both UK and U.S. operations for Olympus, Woodford's appointment as CEO in February 2011 was recognized as both the summation of a meteoric rise of a talented young executive and as a sign that the insular corporate culture of "Japan, Inc." was finally changing. Woodford had benefited greatly from the tutelage and mentorship of Olympus Chairman Tsuyoshi Kikukawa, which made the story of Woodford's first few months at the helm even more distressing.
As part of a regular review of Tokyo operations, Woodford began analyzing four separate acquisitions that Olympus had made between 2006 and 2009. Three of the four-a recycling company, a cosmetics company, and a food container company-had cost Olympus $1 billion, but their assets had already been written down to just a fraction of that on the balance sheet, indicating that they were considered to be of no real value to the corporation. Further investigation revealed that all three companies were registered in the Caribbean tax haven Cayman Islands. In addition, all three companies were dissolved and closed shortly after being acquired by Olympus.
The fourth company-a UK-based medical instruments company called Gyrus-was acquired for $2.2 billion in 2008. The purchase included a $687 million "transaction fee" to two investment bankers, with the funds going into a Cayman Islands account that was also closed shortly after the deal was concluded. Given that investmentbanking fees typically amount to only 1 percent of the transaction, a fee of almost 33 percent was suspicious enough to warrant an independent audit, which the Olympus board had authorized in October 2009. The audit report subsequently declared that the company's directors had done nothing wrong.
In an October 11, 2011, memo to Kikukawa, Michael Woodford expressed his suspicions that a series of clear accounting irregularities had destroyed "$1.3bn of shareholder value" in what he described as "a catalogue of calamitous errors and exceptionally poor judgment." The memo concluded with a call for Kikukawa to resign as chairman of Olympus Corporation. Three days later, Kikukawa and his board of directors responded by firing Woodford from his position as CEO.
Woodford's personal account of the days that followed his termination reads like a spy novel. Fearing for his life on the basis of a personal belief that the accounting scandal involved members of the yakuza -the Japanese mafia-Woodford left Japan for the United Kingdom very shortly afterward. It was later reported that Woodford was able to provide sufficient evidence to warrant investigation into his claims by the FBI, Scotland Yard's Serious Crime Unit, and Tokyo's Securities and Exchange Surveillance Commission.
After weeks of denials-and a disconcerting silence among Japan's regulators and mainstream media-the company was forced to concede in the face of incontrovertible evidence that it had misappropriated funds in order to hide investment losses dating back to the 1990s. Public promises were made to introduce a new Corporate Governance Committee and to release five years' worth of revised financial accounts. Kikukawa finally admitted to fraud and stepped down as chairman of Olympus Corporation. He, along with two other Olympus executives, will face up to 10 years in jail for his role in the scandal.
In June 2012, Olympus announced that its board of directors had approved a settlement offer with Woodford of 1.2 billion yen ($15.4 million) for unfair dismissal, but the financial impact of the scandal may be far from over. The stock price had plummeted by as much as 80 percent in the immediate postscandal period, and in November 2012, the company announced that 48 mostly foreign institutional investors and pension funds had filed a lawsuit seeking 19.1 billion yen ($240 million) in compensation for investment losses resulting from the revelation of accounting irregularities.
What accounting irregularities did Michael Woodford uncover at Olympus?
Movies like Silkwood and The Insider have portrayed whistle-blowers as lone heroes on the front line or in middle management, working against corrupt organizations at great personal risk to their own well-being. At Olympus Corporation, the Japanese camera and medical equipment manufacturer, the story was dramatically different. The whistle-blower in this case was recently appointed Chief Executive Officer (CEO) Michael Woodford.
As the former head of both UK and U.S. operations for Olympus, Woodford's appointment as CEO in February 2011 was recognized as both the summation of a meteoric rise of a talented young executive and as a sign that the insular corporate culture of "Japan, Inc." was finally changing. Woodford had benefited greatly from the tutelage and mentorship of Olympus Chairman Tsuyoshi Kikukawa, which made the story of Woodford's first few months at the helm even more distressing.
As part of a regular review of Tokyo operations, Woodford began analyzing four separate acquisitions that Olympus had made between 2006 and 2009. Three of the four-a recycling company, a cosmetics company, and a food container company-had cost Olympus $1 billion, but their assets had already been written down to just a fraction of that on the balance sheet, indicating that they were considered to be of no real value to the corporation. Further investigation revealed that all three companies were registered in the Caribbean tax haven Cayman Islands. In addition, all three companies were dissolved and closed shortly after being acquired by Olympus.
The fourth company-a UK-based medical instruments company called Gyrus-was acquired for $2.2 billion in 2008. The purchase included a $687 million "transaction fee" to two investment bankers, with the funds going into a Cayman Islands account that was also closed shortly after the deal was concluded. Given that investmentbanking fees typically amount to only 1 percent of the transaction, a fee of almost 33 percent was suspicious enough to warrant an independent audit, which the Olympus board had authorized in October 2009. The audit report subsequently declared that the company's directors had done nothing wrong.
In an October 11, 2011, memo to Kikukawa, Michael Woodford expressed his suspicions that a series of clear accounting irregularities had destroyed "$1.3bn of shareholder value" in what he described as "a catalogue of calamitous errors and exceptionally poor judgment." The memo concluded with a call for Kikukawa to resign as chairman of Olympus Corporation. Three days later, Kikukawa and his board of directors responded by firing Woodford from his position as CEO.
Woodford's personal account of the days that followed his termination reads like a spy novel. Fearing for his life on the basis of a personal belief that the accounting scandal involved members of the yakuza -the Japanese mafia-Woodford left Japan for the United Kingdom very shortly afterward. It was later reported that Woodford was able to provide sufficient evidence to warrant investigation into his claims by the FBI, Scotland Yard's Serious Crime Unit, and Tokyo's Securities and Exchange Surveillance Commission.
After weeks of denials-and a disconcerting silence among Japan's regulators and mainstream media-the company was forced to concede in the face of incontrovertible evidence that it had misappropriated funds in order to hide investment losses dating back to the 1990s. Public promises were made to introduce a new Corporate Governance Committee and to release five years' worth of revised financial accounts. Kikukawa finally admitted to fraud and stepped down as chairman of Olympus Corporation. He, along with two other Olympus executives, will face up to 10 years in jail for his role in the scandal.
In June 2012, Olympus announced that its board of directors had approved a settlement offer with Woodford of 1.2 billion yen ($15.4 million) for unfair dismissal, but the financial impact of the scandal may be far from over. The stock price had plummeted by as much as 80 percent in the immediate postscandal period, and in November 2012, the company announced that 48 mostly foreign institutional investors and pension funds had filed a lawsuit seeking 19.1 billion yen ($240 million) in compensation for investment losses resulting from the revelation of accounting irregularities.
What accounting irregularities did Michael Woodford uncover at Olympus?
Question
OLYMPUS: PAYING A PRICE FOR DOING WHAT'S RIGHT? Movies like Silkwood and The Insider have portrayed whistle-blowers as lone heroes on the front line or in middle management, working against corrupt organizations at great personal risk to their own well-being. At Olympus Corporation, the Japanese camera and medical equipment manufacturer, the story was dramatically different. The whistle-blower in this case was recently appointed Chief Executive Officer (CEO) Michael Woodford.
As the former head of both UK and U.S. operations for Olympus, Woodford's appointment as CEO in February 2011 was recognized as both the summation of a meteoric rise of a talented young executive and as a sign that the insular corporate culture of "Japan, Inc." was finally changing. Woodford had benefited greatly from the tutelage and mentorship of Olympus Chairman Tsuyoshi Kikukawa, which made the story of Woodford's first few months at the helm even more distressing.
As part of a regular review of Tokyo operations, Woodford began analyzing four separate acquisitions that Olympus had made between 2006 and 2009. Three of the four-a recycling company, a cosmetics company, and a food container company-had cost Olympus $1 billion, but their assets had already been written down to just a fraction of that on the balance sheet, indicating that they were considered to be of no real value to the corporation. Further investigation revealed that all three companies were registered in the Caribbean tax haven Cayman Islands. In addition, all three companies were dissolved and closed shortly after being acquired by Olympus.
The fourth company-a UK-based medical instruments company called Gyrus-was acquired for $2.2 billion in 2008. The purchase included a $687 million "transaction fee" to two investment bankers, with the funds going into a Cayman Islands account that was also closed shortly after the deal was concluded. Given that investmentbanking fees typically amount to only 1 percent of the transaction, a fee of almost 33 percent was suspicious enough to warrant an independent audit, which the Olympus board had authorized in October 2009. The audit report subsequently declared that the company's directors had done nothing wrong.
In an October 11, 2011, memo to Kikukawa, Michael Woodford expressed his suspicions that a series of clear accounting irregularities had destroyed "$1.3bn of shareholder value" in what he described as "a catalogue of calamitous errors and exceptionally poor judgment." The memo concluded with a call for Kikukawa to resign as chairman of Olympus Corporation. Three days later, Kikukawa and his board of directors responded by firing Woodford from his position as CEO.
Woodford's personal account of the days that followed his termination reads like a spy novel. Fearing for his life on the basis of a personal belief that the accounting scandal involved members of the yakuza -the Japanese mafia-Woodford left Japan for the United Kingdom very shortly afterward. It was later reported that Woodford was able to provide sufficient evidence to warrant investigation into his claims by the FBI, Scotland Yard's Serious Crime Unit, and Tokyo's Securities and Exchange Surveillance Commission.
After weeks of denials-and a disconcerting silence among Japan's regulators and mainstream media-the company was forced to concede in the face of incontrovertible evidence that it had misappropriated funds in order to hide investment losses dating back to the 1990s. Public promises were made to introduce a new Corporate Governance Committee and to release five years' worth of revised financial accounts. Kikukawa finally admitted to fraud and stepped down as chairman of Olympus Corporation. He, along with two other Olympus executives, will face up to 10 years in jail for his role in the scandal.
In June 2012, Olympus announced that its board of directors had approved a settlement offer with Woodford of 1.2 billion yen ($15.4 million) for unfair dismissal, but the financial impact of the scandal may be far from over. The stock price had plummeted by as much as 80 percent in the immediate postscandal period, and in November 2012, the company announced that 48 mostly foreign institutional investors and pension funds had filed a lawsuit seeking 19.1 billion yen ($240 million) in compensation for investment losses resulting from the revelation of accounting irregularities.
How did the executive leadership respond to Woodford's revelations?
As the former head of both UK and U.S. operations for Olympus, Woodford's appointment as CEO in February 2011 was recognized as both the summation of a meteoric rise of a talented young executive and as a sign that the insular corporate culture of "Japan, Inc." was finally changing. Woodford had benefited greatly from the tutelage and mentorship of Olympus Chairman Tsuyoshi Kikukawa, which made the story of Woodford's first few months at the helm even more distressing.
As part of a regular review of Tokyo operations, Woodford began analyzing four separate acquisitions that Olympus had made between 2006 and 2009. Three of the four-a recycling company, a cosmetics company, and a food container company-had cost Olympus $1 billion, but their assets had already been written down to just a fraction of that on the balance sheet, indicating that they were considered to be of no real value to the corporation. Further investigation revealed that all three companies were registered in the Caribbean tax haven Cayman Islands. In addition, all three companies were dissolved and closed shortly after being acquired by Olympus.
The fourth company-a UK-based medical instruments company called Gyrus-was acquired for $2.2 billion in 2008. The purchase included a $687 million "transaction fee" to two investment bankers, with the funds going into a Cayman Islands account that was also closed shortly after the deal was concluded. Given that investmentbanking fees typically amount to only 1 percent of the transaction, a fee of almost 33 percent was suspicious enough to warrant an independent audit, which the Olympus board had authorized in October 2009. The audit report subsequently declared that the company's directors had done nothing wrong.
In an October 11, 2011, memo to Kikukawa, Michael Woodford expressed his suspicions that a series of clear accounting irregularities had destroyed "$1.3bn of shareholder value" in what he described as "a catalogue of calamitous errors and exceptionally poor judgment." The memo concluded with a call for Kikukawa to resign as chairman of Olympus Corporation. Three days later, Kikukawa and his board of directors responded by firing Woodford from his position as CEO.
Woodford's personal account of the days that followed his termination reads like a spy novel. Fearing for his life on the basis of a personal belief that the accounting scandal involved members of the yakuza -the Japanese mafia-Woodford left Japan for the United Kingdom very shortly afterward. It was later reported that Woodford was able to provide sufficient evidence to warrant investigation into his claims by the FBI, Scotland Yard's Serious Crime Unit, and Tokyo's Securities and Exchange Surveillance Commission.
After weeks of denials-and a disconcerting silence among Japan's regulators and mainstream media-the company was forced to concede in the face of incontrovertible evidence that it had misappropriated funds in order to hide investment losses dating back to the 1990s. Public promises were made to introduce a new Corporate Governance Committee and to release five years' worth of revised financial accounts. Kikukawa finally admitted to fraud and stepped down as chairman of Olympus Corporation. He, along with two other Olympus executives, will face up to 10 years in jail for his role in the scandal.
In June 2012, Olympus announced that its board of directors had approved a settlement offer with Woodford of 1.2 billion yen ($15.4 million) for unfair dismissal, but the financial impact of the scandal may be far from over. The stock price had plummeted by as much as 80 percent in the immediate postscandal period, and in November 2012, the company announced that 48 mostly foreign institutional investors and pension funds had filed a lawsuit seeking 19.1 billion yen ($240 million) in compensation for investment losses resulting from the revelation of accounting irregularities.
How did the executive leadership respond to Woodford's revelations?
Question
OLYMPUS: PAYING A PRICE FOR DOING WHAT'S RIGHT? Movies like Silkwood and The Insider have portrayed whistle-blowers as lone heroes on the front line or in middle management, working against corrupt organizations at great personal risk to their own well-being. At Olympus Corporation, the Japanese camera and medical equipment manufacturer, the story was dramatically different. The whistle-blower in this case was recently appointed Chief Executive Officer (CEO) Michael Woodford.
As the former head of both UK and U.S. operations for Olympus, Woodford's appointment as CEO in February 2011 was recognized as both the summation of a meteoric rise of a talented young executive and as a sign that the insular corporate culture of "Japan, Inc." was finally changing. Woodford had benefited greatly from the tutelage and mentorship of Olympus Chairman Tsuyoshi Kikukawa, which made the story of Woodford's first few months at the helm even more distressing.
As part of a regular review of Tokyo operations, Woodford began analyzing four separate acquisitions that Olympus had made between 2006 and 2009. Three of the four-a recycling company, a cosmetics company, and a food container company-had cost Olympus $1 billion, but their assets had already been written down to just a fraction of that on the balance sheet, indicating that they were considered to be of no real value to the corporation. Further investigation revealed that all three companies were registered in the Caribbean tax haven Cayman Islands. In addition, all three companies were dissolved and closed shortly after being acquired by Olympus.
The fourth company-a UK-based medical instruments company called Gyrus-was acquired for $2.2 billion in 2008. The purchase included a $687 million "transaction fee" to two investment bankers, with the funds going into a Cayman Islands account that was also closed shortly after the deal was concluded. Given that investmentbanking fees typically amount to only 1 percent of the transaction, a fee of almost 33 percent was suspicious enough to warrant an independent audit, which the Olympus board had authorized in October 2009. The audit report subsequently declared that the company's directors had done nothing wrong.
In an October 11, 2011, memo to Kikukawa, Michael Woodford expressed his suspicions that a series of clear accounting irregularities had destroyed "$1.3bn of shareholder value" in what he described as "a catalogue of calamitous errors and exceptionally poor judgment." The memo concluded with a call for Kikukawa to resign as chairman of Olympus Corporation. Three days later, Kikukawa and his board of directors responded by firing Woodford from his position as CEO.
Woodford's personal account of the days that followed his termination reads like a spy novel. Fearing for his life on the basis of a personal belief that the accounting scandal involved members of the yakuza -the Japanese mafia-Woodford left Japan for the United Kingdom very shortly afterward. It was later reported that Woodford was able to provide sufficient evidence to warrant investigation into his claims by the FBI, Scotland Yard's Serious Crime Unit, and Tokyo's Securities and Exchange Surveillance Commission.
After weeks of denials-and a disconcerting silence among Japan's regulators and mainstream media-the company was forced to concede in the face of incontrovertible evidence that it had misappropriated funds in order to hide investment losses dating back to the 1990s. Public promises were made to introduce a new Corporate Governance Committee and to release five years' worth of revised financial accounts. Kikukawa finally admitted to fraud and stepped down as chairman of Olympus Corporation. He, along with two other Olympus executives, will face up to 10 years in jail for his role in the scandal.
In June 2012, Olympus announced that its board of directors had approved a settlement offer with Woodford of 1.2 billion yen ($15.4 million) for unfair dismissal, but the financial impact of the scandal may be far from over. The stock price had plummeted by as much as 80 percent in the immediate postscandal period, and in November 2012, the company announced that 48 mostly foreign institutional investors and pension funds had filed a lawsuit seeking 19.1 billion yen ($240 million) in compensation for investment losses resulting from the revelation of accounting irregularities.
Critics argue that Woodford could have been more effective if he had taken a longer-term approach to addressing the accounting scandal, rather than the "showdown" approach he took with Kikukawa. Is that a fair assessment? Why or why not?
As the former head of both UK and U.S. operations for Olympus, Woodford's appointment as CEO in February 2011 was recognized as both the summation of a meteoric rise of a talented young executive and as a sign that the insular corporate culture of "Japan, Inc." was finally changing. Woodford had benefited greatly from the tutelage and mentorship of Olympus Chairman Tsuyoshi Kikukawa, which made the story of Woodford's first few months at the helm even more distressing.
As part of a regular review of Tokyo operations, Woodford began analyzing four separate acquisitions that Olympus had made between 2006 and 2009. Three of the four-a recycling company, a cosmetics company, and a food container company-had cost Olympus $1 billion, but their assets had already been written down to just a fraction of that on the balance sheet, indicating that they were considered to be of no real value to the corporation. Further investigation revealed that all three companies were registered in the Caribbean tax haven Cayman Islands. In addition, all three companies were dissolved and closed shortly after being acquired by Olympus.
The fourth company-a UK-based medical instruments company called Gyrus-was acquired for $2.2 billion in 2008. The purchase included a $687 million "transaction fee" to two investment bankers, with the funds going into a Cayman Islands account that was also closed shortly after the deal was concluded. Given that investmentbanking fees typically amount to only 1 percent of the transaction, a fee of almost 33 percent was suspicious enough to warrant an independent audit, which the Olympus board had authorized in October 2009. The audit report subsequently declared that the company's directors had done nothing wrong.
In an October 11, 2011, memo to Kikukawa, Michael Woodford expressed his suspicions that a series of clear accounting irregularities had destroyed "$1.3bn of shareholder value" in what he described as "a catalogue of calamitous errors and exceptionally poor judgment." The memo concluded with a call for Kikukawa to resign as chairman of Olympus Corporation. Three days later, Kikukawa and his board of directors responded by firing Woodford from his position as CEO.
Woodford's personal account of the days that followed his termination reads like a spy novel. Fearing for his life on the basis of a personal belief that the accounting scandal involved members of the yakuza -the Japanese mafia-Woodford left Japan for the United Kingdom very shortly afterward. It was later reported that Woodford was able to provide sufficient evidence to warrant investigation into his claims by the FBI, Scotland Yard's Serious Crime Unit, and Tokyo's Securities and Exchange Surveillance Commission.
After weeks of denials-and a disconcerting silence among Japan's regulators and mainstream media-the company was forced to concede in the face of incontrovertible evidence that it had misappropriated funds in order to hide investment losses dating back to the 1990s. Public promises were made to introduce a new Corporate Governance Committee and to release five years' worth of revised financial accounts. Kikukawa finally admitted to fraud and stepped down as chairman of Olympus Corporation. He, along with two other Olympus executives, will face up to 10 years in jail for his role in the scandal.
In June 2012, Olympus announced that its board of directors had approved a settlement offer with Woodford of 1.2 billion yen ($15.4 million) for unfair dismissal, but the financial impact of the scandal may be far from over. The stock price had plummeted by as much as 80 percent in the immediate postscandal period, and in November 2012, the company announced that 48 mostly foreign institutional investors and pension funds had filed a lawsuit seeking 19.1 billion yen ($240 million) in compensation for investment losses resulting from the revelation of accounting irregularities.
Critics argue that Woodford could have been more effective if he had taken a longer-term approach to addressing the accounting scandal, rather than the "showdown" approach he took with Kikukawa. Is that a fair assessment? Why or why not?
Question
OLYMPUS: PAYING A PRICE FOR DOING WHAT'S RIGHT? Movies like Silkwood and The Insider have portrayed whistle-blowers as lone heroes on the front line or in middle management, working against corrupt organizations at great personal risk to their own well-being. At Olympus Corporation, the Japanese camera and medical equipment manufacturer, the story was dramatically different. The whistle-blower in this case was recently appointed Chief Executive Officer (CEO) Michael Woodford.
As the former head of both UK and U.S. operations for Olympus, Woodford's appointment as CEO in February 2011 was recognized as both the summation of a meteoric rise of a talented young executive and as a sign that the insular corporate culture of "Japan, Inc." was finally changing. Woodford had benefited greatly from the tutelage and mentorship of Olympus Chairman Tsuyoshi Kikukawa, which made the story of Woodford's first few months at the helm even more distressing.
As part of a regular review of Tokyo operations, Woodford began analyzing four separate acquisitions that Olympus had made between 2006 and 2009. Three of the four-a recycling company, a cosmetics company, and a food container company-had cost Olympus $1 billion, but their assets had already been written down to just a fraction of that on the balance sheet, indicating that they were considered to be of no real value to the corporation. Further investigation revealed that all three companies were registered in the Caribbean tax haven Cayman Islands. In addition, all three companies were dissolved and closed shortly after being acquired by Olympus.
The fourth company-a UK-based medical instruments company called Gyrus-was acquired for $2.2 billion in 2008. The purchase included a $687 million "transaction fee" to two investment bankers, with the funds going into a Cayman Islands account that was also closed shortly after the deal was concluded. Given that investmentbanking fees typically amount to only 1 percent of the transaction, a fee of almost 33 percent was suspicious enough to warrant an independent audit, which the Olympus board had authorized in October 2009. The audit report subsequently declared that the company's directors had done nothing wrong.
In an October 11, 2011, memo to Kikukawa, Michael Woodford expressed his suspicions that a series of clear accounting irregularities had destroyed "$1.3bn of shareholder value" in what he described as "a catalogue of calamitous errors and exceptionally poor judgment." The memo concluded with a call for Kikukawa to resign as chairman of Olympus Corporation. Three days later, Kikukawa and his board of directors responded by firing Woodford from his position as CEO.
Woodford's personal account of the days that followed his termination reads like a spy novel. Fearing for his life on the basis of a personal belief that the accounting scandal involved members of the yakuza -the Japanese mafia-Woodford left Japan for the United Kingdom very shortly afterward. It was later reported that Woodford was able to provide sufficient evidence to warrant investigation into his claims by the FBI, Scotland Yard's Serious Crime Unit, and Tokyo's Securities and Exchange Surveillance Commission.
After weeks of denials-and a disconcerting silence among Japan's regulators and mainstream media-the company was forced to concede in the face of incontrovertible evidence that it had misappropriated funds in order to hide investment losses dating back to the 1990s. Public promises were made to introduce a new Corporate Governance Committee and to release five years' worth of revised financial accounts. Kikukawa finally admitted to fraud and stepped down as chairman of Olympus Corporation. He, along with two other Olympus executives, will face up to 10 years in jail for his role in the scandal.
In June 2012, Olympus announced that its board of directors had approved a settlement offer with Woodford of 1.2 billion yen ($15.4 million) for unfair dismissal, but the financial impact of the scandal may be far from over. The stock price had plummeted by as much as 80 percent in the immediate postscandal period, and in November 2012, the company announced that 48 mostly foreign institutional investors and pension funds had filed a lawsuit seeking 19.1 billion yen ($240 million) in compensation for investment losses resulting from the revelation of accounting irregularities.
Can Olympus recover from this scandal? Why or why not?
Sources: The Economist, "The Olympus Scandal: Paying a Price for Doing What's Right," November 24, 2012; Bill Powell, "A Rotten Picture at Olympus," Time, December 12, 2012, and "Scandal at Olympus: The CEO Who Knew Too Much," Time, October 28, 2011; Michael Woodford, Exposure: Inside the Olympus Scandal: How I Went from CEO to Whistleblower (Portfolio, November 2012); Yuri Kageyama, "Olympus Whistleblower Wins Millions in Settlement," Bloomberg Businessweek, June 8, 2012; and Associated Press, "Olympus Investors Seek $240 Million Compensation," November 13, 2012.
As the former head of both UK and U.S. operations for Olympus, Woodford's appointment as CEO in February 2011 was recognized as both the summation of a meteoric rise of a talented young executive and as a sign that the insular corporate culture of "Japan, Inc." was finally changing. Woodford had benefited greatly from the tutelage and mentorship of Olympus Chairman Tsuyoshi Kikukawa, which made the story of Woodford's first few months at the helm even more distressing.
As part of a regular review of Tokyo operations, Woodford began analyzing four separate acquisitions that Olympus had made between 2006 and 2009. Three of the four-a recycling company, a cosmetics company, and a food container company-had cost Olympus $1 billion, but their assets had already been written down to just a fraction of that on the balance sheet, indicating that they were considered to be of no real value to the corporation. Further investigation revealed that all three companies were registered in the Caribbean tax haven Cayman Islands. In addition, all three companies were dissolved and closed shortly after being acquired by Olympus.
The fourth company-a UK-based medical instruments company called Gyrus-was acquired for $2.2 billion in 2008. The purchase included a $687 million "transaction fee" to two investment bankers, with the funds going into a Cayman Islands account that was also closed shortly after the deal was concluded. Given that investmentbanking fees typically amount to only 1 percent of the transaction, a fee of almost 33 percent was suspicious enough to warrant an independent audit, which the Olympus board had authorized in October 2009. The audit report subsequently declared that the company's directors had done nothing wrong.
In an October 11, 2011, memo to Kikukawa, Michael Woodford expressed his suspicions that a series of clear accounting irregularities had destroyed "$1.3bn of shareholder value" in what he described as "a catalogue of calamitous errors and exceptionally poor judgment." The memo concluded with a call for Kikukawa to resign as chairman of Olympus Corporation. Three days later, Kikukawa and his board of directors responded by firing Woodford from his position as CEO.
Woodford's personal account of the days that followed his termination reads like a spy novel. Fearing for his life on the basis of a personal belief that the accounting scandal involved members of the yakuza -the Japanese mafia-Woodford left Japan for the United Kingdom very shortly afterward. It was later reported that Woodford was able to provide sufficient evidence to warrant investigation into his claims by the FBI, Scotland Yard's Serious Crime Unit, and Tokyo's Securities and Exchange Surveillance Commission.
After weeks of denials-and a disconcerting silence among Japan's regulators and mainstream media-the company was forced to concede in the face of incontrovertible evidence that it had misappropriated funds in order to hide investment losses dating back to the 1990s. Public promises were made to introduce a new Corporate Governance Committee and to release five years' worth of revised financial accounts. Kikukawa finally admitted to fraud and stepped down as chairman of Olympus Corporation. He, along with two other Olympus executives, will face up to 10 years in jail for his role in the scandal.
In June 2012, Olympus announced that its board of directors had approved a settlement offer with Woodford of 1.2 billion yen ($15.4 million) for unfair dismissal, but the financial impact of the scandal may be far from over. The stock price had plummeted by as much as 80 percent in the immediate postscandal period, and in November 2012, the company announced that 48 mostly foreign institutional investors and pension funds had filed a lawsuit seeking 19.1 billion yen ($240 million) in compensation for investment losses resulting from the revelation of accounting irregularities.
Can Olympus recover from this scandal? Why or why not?
Sources: The Economist, "The Olympus Scandal: Paying a Price for Doing What's Right," November 24, 2012; Bill Powell, "A Rotten Picture at Olympus," Time, December 12, 2012, and "Scandal at Olympus: The CEO Who Knew Too Much," Time, October 28, 2011; Michael Woodford, Exposure: Inside the Olympus Scandal: How I Went from CEO to Whistleblower (Portfolio, November 2012); Yuri Kageyama, "Olympus Whistleblower Wins Millions in Settlement," Bloomberg Businessweek, June 8, 2012; and Associated Press, "Olympus Investors Seek $240 Million Compensation," November 13, 2012.
Question
Question
Question
Question
Question
Question
Unlock Deck
Sign up to unlock the cards in this deck!
Unlock Deck
Unlock Deck
1/48
Play
Full screen (f)
Deck 7: Blowing the Whistle
1
Good Money
B en is a sales team leader at a large chain of tire stores. The company is aggressive and is opening new stores every month. Ben is very ambitious and sees plenty of opportunities to move up in the organization-especially if he is able to make a name for himself as a star salesman.
As with any retail organization, Ben's company is driven by sales, and it is constantly experimenting with new sales campaigns and incentive programs for its salespeople. Ben didn't expect this morning's sales meeting to be any different-a new incentive tied to a new campaign, supported by a big media campaign in the local area.
Ben's boss, John, didn't waste any time in getting to the point of the meeting:
"OK guys, I have some big news. Rather than simply negotiating short-term incentives on specific brands to generate sales, the company has signed an exclusive contract with Benfield Tires to take every tire produced in the new Voyager line. That exclusive contract comes with a huge discount based on serious volume. In other words, the more tires we sell, the more money we'll make-and I'm talking about good money for the company and very good bonus money for you-so put everybody into these tires. If we do well in this first contract with Benfield, there could be other exclusives down the road. This could be the beginning of something big for us."
John then laid out the details on the sales incentive and showed Ben and his fellow team leaders how they could earn thousands of dollars in bonuses over the next couple of months if they pushed the new Benfield Voyagers. Ben could certainly use the money, but he was concerned about pushing a new tire model so aggressively when it was an unknown in the marketplace. He decided to talk to their most experienced tire mechanic, Rick. Rick had worked for the company for over 25 years-so long that many of the younger guys joked that he either had tire rubber in his veins or had apprenticed on Henry Ford's Model T.
"So, Rick, what do you think about these new Benfield Voyagers?" asked Ben. "Are they really such a good deal for our customers, or are they just a moneymaker for us?"
Rick was very direct in his response: "I took a look at some of the specs on them, and they don't look good. I think Benfield is sacrificing quality to cut costs. By the standards of some of our other suppliers, these tires would qualify as 'seconds'-and pretty bad ones too. You couldn't pay me to put them on my car-they're good for 15,000 miles at the most. We're taking a big risk promoting these tires as our top model."
If Ben decides to raise concerns about the product quality of the Benfield Voyagers, he will become a whistleblower. The difference between internal and external whistle-blowing is explained on page 140. Which approach should Ben follow if he does decide to raise his concerns?
B en is a sales team leader at a large chain of tire stores. The company is aggressive and is opening new stores every month. Ben is very ambitious and sees plenty of opportunities to move up in the organization-especially if he is able to make a name for himself as a star salesman.
As with any retail organization, Ben's company is driven by sales, and it is constantly experimenting with new sales campaigns and incentive programs for its salespeople. Ben didn't expect this morning's sales meeting to be any different-a new incentive tied to a new campaign, supported by a big media campaign in the local area.
Ben's boss, John, didn't waste any time in getting to the point of the meeting:
"OK guys, I have some big news. Rather than simply negotiating short-term incentives on specific brands to generate sales, the company has signed an exclusive contract with Benfield Tires to take every tire produced in the new Voyager line. That exclusive contract comes with a huge discount based on serious volume. In other words, the more tires we sell, the more money we'll make-and I'm talking about good money for the company and very good bonus money for you-so put everybody into these tires. If we do well in this first contract with Benfield, there could be other exclusives down the road. This could be the beginning of something big for us."
John then laid out the details on the sales incentive and showed Ben and his fellow team leaders how they could earn thousands of dollars in bonuses over the next couple of months if they pushed the new Benfield Voyagers. Ben could certainly use the money, but he was concerned about pushing a new tire model so aggressively when it was an unknown in the marketplace. He decided to talk to their most experienced tire mechanic, Rick. Rick had worked for the company for over 25 years-so long that many of the younger guys joked that he either had tire rubber in his veins or had apprenticed on Henry Ford's Model T.
"So, Rick, what do you think about these new Benfield Voyagers?" asked Ben. "Are they really such a good deal for our customers, or are they just a moneymaker for us?"
Rick was very direct in his response: "I took a look at some of the specs on them, and they don't look good. I think Benfield is sacrificing quality to cut costs. By the standards of some of our other suppliers, these tires would qualify as 'seconds'-and pretty bad ones too. You couldn't pay me to put them on my car-they're good for 15,000 miles at the most. We're taking a big risk promoting these tires as our top model."
If Ben decides to raise concerns about the product quality of the Benfield Voyagers, he will become a whistleblower. The difference between internal and external whistle-blowing is explained on page 140. Which approach should Ben follow if he does decide to raise his concerns?
Whistle blowing simply means the identification of a misconduct in the corporate and then bringing that misconduct to the attention of others. The one who does this is known as a whistle blower. There are two types of whistle blowing. These are as follows:
• Internal whistle-blowing: It is the one in which an employee identifies a misconduct in the corporate and then bring that misconduct to the attention of a superior.
• External whistle-blowing: It is the one in which an employee identifies a misconduct in the corporate and then bring that misconduct to the attention of a law enforcing agency or media.
In the provided case, person B has two different options. These are as follows:
• Initially, person B should opt for the internal procedure. He must give a try if the problem could have been solved internally.
• If the internal procedures do not work, then he should probably go for an external procedure and approach a law enforcement agency. Media must be last option.
• Internal whistle-blowing: It is the one in which an employee identifies a misconduct in the corporate and then bring that misconduct to the attention of a superior.
• External whistle-blowing: It is the one in which an employee identifies a misconduct in the corporate and then bring that misconduct to the attention of a law enforcing agency or media.
In the provided case, person B has two different options. These are as follows:
• Initially, person B should opt for the internal procedure. He must give a try if the problem could have been solved internally.
• If the internal procedures do not work, then he should probably go for an external procedure and approach a law enforcement agency. Media must be last option.
2
Visit the Government Accountability Project (GAP) at www.whistleblower.org.
a. What is the mission of GAP?
b. How is GAP funded?
c. What kind of assistance is available through GAP for someone thinking about becoming a whistle-blower?
a. What is the mission of GAP?
b. How is GAP funded?
c. What kind of assistance is available through GAP for someone thinking about becoming a whistle-blower?
a) GAP has a mission that is basically to protect all whistleblowers. They do this by:
i. Being an organization of lawyers, they protect all whistleblowers against retaliation.
ii. Based on whistleblower information, they have conducted their own investigations and prevented a lot of harm being done to the environment and community. Like prevent nuclear plants being built that were accidents waiting to happen, closing down toxic incinerators and the like.
iii. They also help to strengthen the whistleblower laws. They have been at the forefront of passing much new national and international legislation to protect whistle blowers. This has been both in the public sector as well as the private sector.
iv. The last thing that they do is spread the knowledge. Most of the members are adjunct professors in prominent law schools. They also run a clinic where they have 10-12 interns during summer internship.
These are some of the main aims of GAP.
b) GAP is funded mainly through donations. These donations can be:
i. A one-time donation either in cash or by transfer of securities.
ii. A planned donation. This is when a donation is pledged to be delivered regularly over a period of time.
iii. Support any particular ongoing whistleblower retaliation protection program.
These are the different ways by which GAP is funded.
c) If one is thinking of becoming a whistleblower, GAP is willing to guide the person through the entire process. There is an elaborate " Intake Form " that has to be filled in and sent to the intake coordinator. GAP also expects that those who have the means to pay their legal fees should volunteer to do so. But this is not a pre-condition for GAP taking on any case.
i. Being an organization of lawyers, they protect all whistleblowers against retaliation.
ii. Based on whistleblower information, they have conducted their own investigations and prevented a lot of harm being done to the environment and community. Like prevent nuclear plants being built that were accidents waiting to happen, closing down toxic incinerators and the like.
iii. They also help to strengthen the whistleblower laws. They have been at the forefront of passing much new national and international legislation to protect whistle blowers. This has been both in the public sector as well as the private sector.
iv. The last thing that they do is spread the knowledge. Most of the members are adjunct professors in prominent law schools. They also run a clinic where they have 10-12 interns during summer internship.
These are some of the main aims of GAP.
b) GAP is funded mainly through donations. These donations can be:
i. A one-time donation either in cash or by transfer of securities.
ii. A planned donation. This is when a donation is pledged to be delivered regularly over a period of time.
iii. Support any particular ongoing whistleblower retaliation protection program.
These are the different ways by which GAP is funded.
c) If one is thinking of becoming a whistleblower, GAP is willing to guide the person through the entire process. There is an elaborate " Intake Form " that has to be filled in and sent to the intake coordinator. GAP also expects that those who have the means to pay their legal fees should volunteer to do so. But this is not a pre-condition for GAP taking on any case.
3
What is a whistle-blower?
In any company or organization, employees cannot every time be able to identify fraud-related activities in person or individually as they will be ties up with their jobs and targets.
A whistle-blower is a person who takes care of all the people working in an organization and checks if any fraud-related activities are taking place. An individual is dedicated specially to look after and identify fraudulent activities in the organisation. If they seem to identify any such activity, they report immediately to the higher officials. The whistle-blowers can be employees, contractors etc.
Most of the companies have different type of rules and policies which clearly gives a note that how to react when any wrong or fraud is going on and for monitoring this thing the some persons will be appointed and they are called whistle-blowers.
A whistle-blower is a person who takes care of all the people working in an organization and checks if any fraud-related activities are taking place. An individual is dedicated specially to look after and identify fraudulent activities in the organisation. If they seem to identify any such activity, they report immediately to the higher officials. The whistle-blowers can be employees, contractors etc.
Most of the companies have different type of rules and policies which clearly gives a note that how to react when any wrong or fraud is going on and for monitoring this thing the some persons will be appointed and they are called whistle-blowers.
4
Why are whistle-blowers regarded as models of honor and integrity?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
5
Guilt by omission.
Divide into two groups, and prepare arguments for and against the following behavior: You work for a large retail clothing company that spends a large amount of its advertising budget emphasizing that its clothes are "Made in America." You discover that only 15 percent of its garments are actually "made" in America. The other 85 percent are actually either cut from patterns overseas and assembled here in the United States or cut and assembled overseas and imported as completed garments. Your hometown depends on this clothing company as the largest local employer. Several of your friends and family work at the local garment assembly factory. Should you go public with this information?
Divide into two groups, and prepare arguments for and against the following behavior: You work for a large retail clothing company that spends a large amount of its advertising budget emphasizing that its clothes are "Made in America." You discover that only 15 percent of its garments are actually "made" in America. The other 85 percent are actually either cut from patterns overseas and assembled here in the United States or cut and assembled overseas and imported as completed garments. Your hometown depends on this clothing company as the largest local employer. Several of your friends and family work at the local garment assembly factory. Should you go public with this information?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
6
Good Money
B en is a sales team leader at a large chain of tire stores. The company is aggressive and is opening new stores every month. Ben is very ambitious and sees plenty of opportunities to move up in the organization-especially if he is able to make a name for himself as a star salesman.
As with any retail organization, Ben's company is driven by sales, and it is constantly experimenting with new sales campaigns and incentive programs for its salespeople. Ben didn't expect this morning's sales meeting to be any different-a new incentive tied to a new campaign, supported by a big media campaign in the local area.
Ben's boss, John, didn't waste any time in getting to the point of the meeting:
"OK guys, I have some big news. Rather than simply negotiating short-term incentives on specific brands to generate sales, the company has signed an exclusive contract with Benfield Tires to take every tire produced in the new Voyager line. That exclusive contract comes with a huge discount based on serious volume. In other words, the more tires we sell, the more money we'll make-and I'm talking about good money for the company and very good bonus money for you-so put everybody into these tires. If we do well in this first contract with Benfield, there could be other exclusives down the road. This could be the beginning of something big for us."
John then laid out the details on the sales incentive and showed Ben and his fellow team leaders how they could earn thousands of dollars in bonuses over the next couple of months if they pushed the new Benfield Voyagers. Ben could certainly use the money, but he was concerned about pushing a new tire model so aggressively when it was an unknown in the marketplace. He decided to talk to their most experienced tire mechanic, Rick. Rick had worked for the company for over 25 years-so long that many of the younger guys joked that he either had tire rubber in his veins or had apprenticed on Henry Ford's Model T.
"So, Rick, what do you think about these new Benfield Voyagers?" asked Ben. "Are they really such a good deal for our customers, or are they just a moneymaker for us?"
Rick was very direct in his response: "I took a look at some of the specs on them, and they don't look good. I think Benfield is sacrificing quality to cut costs. By the standards of some of our other suppliers, these tires would qualify as 'seconds'-and pretty bad ones too. You couldn't pay me to put them on my car-they're good for 15,000 miles at the most. We're taking a big risk promoting these tires as our top model."
The five conditions that must exist for whistle-blowing to be ethical are outlined on pages 140-141. Has Rick given Ben enough information to be concerned about the Benfield Voyagers?
B en is a sales team leader at a large chain of tire stores. The company is aggressive and is opening new stores every month. Ben is very ambitious and sees plenty of opportunities to move up in the organization-especially if he is able to make a name for himself as a star salesman.
As with any retail organization, Ben's company is driven by sales, and it is constantly experimenting with new sales campaigns and incentive programs for its salespeople. Ben didn't expect this morning's sales meeting to be any different-a new incentive tied to a new campaign, supported by a big media campaign in the local area.
Ben's boss, John, didn't waste any time in getting to the point of the meeting:
"OK guys, I have some big news. Rather than simply negotiating short-term incentives on specific brands to generate sales, the company has signed an exclusive contract with Benfield Tires to take every tire produced in the new Voyager line. That exclusive contract comes with a huge discount based on serious volume. In other words, the more tires we sell, the more money we'll make-and I'm talking about good money for the company and very good bonus money for you-so put everybody into these tires. If we do well in this first contract with Benfield, there could be other exclusives down the road. This could be the beginning of something big for us."
John then laid out the details on the sales incentive and showed Ben and his fellow team leaders how they could earn thousands of dollars in bonuses over the next couple of months if they pushed the new Benfield Voyagers. Ben could certainly use the money, but he was concerned about pushing a new tire model so aggressively when it was an unknown in the marketplace. He decided to talk to their most experienced tire mechanic, Rick. Rick had worked for the company for over 25 years-so long that many of the younger guys joked that he either had tire rubber in his veins or had apprenticed on Henry Ford's Model T.
"So, Rick, what do you think about these new Benfield Voyagers?" asked Ben. "Are they really such a good deal for our customers, or are they just a moneymaker for us?"
Rick was very direct in his response: "I took a look at some of the specs on them, and they don't look good. I think Benfield is sacrificing quality to cut costs. By the standards of some of our other suppliers, these tires would qualify as 'seconds'-and pretty bad ones too. You couldn't pay me to put them on my car-they're good for 15,000 miles at the most. We're taking a big risk promoting these tires as our top model."
The five conditions that must exist for whistle-blowing to be ethical are outlined on pages 140-141. Has Rick given Ben enough information to be concerned about the Benfield Voyagers?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
7
Visit the National Whistleblowers Center at www.whistleblowers.org.
a. Using the interactive map, select one country and summarize the whistle-blowing activity in that country.
b. Identify the whistle-blower protections in effect in your home state.
a. Using the interactive map, select one country and summarize the whistle-blowing activity in that country.
b. Identify the whistle-blower protections in effect in your home state.
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
8
What is internal whistle-blowing?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
9
How would you act in the following situations?
What would you do if your company did not have a whistle-blowing policy?
What would you do if your company did not have a whistle-blowing policy?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
10
Which whistle-blowing option is better for an organization-internal or external? Why?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
11
"Tortious interference."
Divide into two groups, and prepare arguments for and against the following behavior: In the case of Dr. Jeffrey Wigand and the Brown Williamson Tobacco Company, the CBS Broadcasting Company chose not to air Dr. Wigand's 60 Minutes interview with Mike Wallace under threat of legal action for "tortious interference" between B W and Dr. Wigand. There were suspicions that CBS was more concerned about avoiding any potential legal action that could derail its pending sale to the Westinghouse Corporation. Was CBS behaving ethically in putting the welfare of its stakeholders in the Westinghouse deal ahead of its obligation to support Dr. Wigand?
Divide into two groups, and prepare arguments for and against the following behavior: In the case of Dr. Jeffrey Wigand and the Brown Williamson Tobacco Company, the CBS Broadcasting Company chose not to air Dr. Wigand's 60 Minutes interview with Mike Wallace under threat of legal action for "tortious interference" between B W and Dr. Wigand. There were suspicions that CBS was more concerned about avoiding any potential legal action that could derail its pending sale to the Westinghouse Corporation. Was CBS behaving ethically in putting the welfare of its stakeholders in the Westinghouse deal ahead of its obligation to support Dr. Wigand?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
12
There are now two whistle-blowing websites separated by only one letter: Summarize their differences, and propose which one offers the greatest assistance to a potential whistle-blower.
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
13
What is external whistle-blowing?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
14
How would you act in the following situations?
You later discover that one of the drivers was not a part of the scheme but was fired anyway when the information was made public. What do you do?
You later discover that one of the drivers was not a part of the scheme but was fired anyway when the information was made public. What do you do?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
15
Why would an organization decide to ignore evidence presented by a whistle-blower?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
16
A new approach to freshness.
Divide into two groups, and prepare arguments for and against the following behavior: You work in the meat department of store 2795 of a large retail grocery chain. The company recently announced a change in the meat-handling protocols from the primary supplier. Starting in January 2014, the meat will be gassed with carbon monoxide before packaging. This retains a brighter color for the meat and delays the discoloration that usually occurs as the meat begins to spoil. You understand from the memo that there will be no information on the product label to indicate this protocol change and that the company has no plans to notify customers of this new process. Should you speak out about the procedure?
Divide into two groups, and prepare arguments for and against the following behavior: You work in the meat department of store 2795 of a large retail grocery chain. The company recently announced a change in the meat-handling protocols from the primary supplier. Starting in January 2014, the meat will be gassed with carbon monoxide before packaging. This retains a brighter color for the meat and delays the discoloration that usually occurs as the meat begins to spoil. You understand from the memo that there will be no information on the product label to indicate this protocol change and that the company has no plans to notify customers of this new process. Should you speak out about the procedure?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
17
Is whistle-blowing a good thing?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
18
How would you act in the following situations?
Should the driver get his job back? Why or why not?
Should the driver get his job back? Why or why not?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
19
Is it reasonable for a whistle-blower to expect a guarantee of anonymity?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
20
California organic.
Divide into two groups and prepare arguments for and against the following behavior: You work in the accounting department of a family-owned mushroom grower based in California that sells premium organic mushrooms to local restaurants and high-end retail grocery stores. The company's product range includes both fresh and dried mushrooms. Your organic certification allows you to charge top dollar for your product, but you notice from invoices that operating costs are increasing significantly without any increase in revenues. The market won't absorb a price increase, so the company has to absorb the higher costs and accept lower profits. One day you notice invoices for the purchase of dried mushrooms from a Japanese supplier. The dried mushrooms are not listed as being organic, but they are apparently being added to your company's dried mushrooms, which are labeled organic and California-grown. Should you speak out about this?
Divide into two groups and prepare arguments for and against the following behavior: You work in the accounting department of a family-owned mushroom grower based in California that sells premium organic mushrooms to local restaurants and high-end retail grocery stores. The company's product range includes both fresh and dried mushrooms. Your organic certification allows you to charge top dollar for your product, but you notice from invoices that operating costs are increasing significantly without any increase in revenues. The market won't absorb a price increase, so the company has to absorb the higher costs and accept lower profits. One day you notice invoices for the purchase of dried mushrooms from a Japanese supplier. The dried mushrooms are not listed as being organic, but they are apparently being added to your company's dried mushrooms, which are labeled organic and California-grown. Should you speak out about this?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
21
List five conditions for whistle-blowing to be considered ethical.
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
22
Why would a whistle-blower be concerned about retaliation?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
23
Under what condition could whistle-blowing be considered unethical?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
24
Why is trust such an important issue in whistle-blowing?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
25
If you blow the whistle on a company for a personal vendetta against another employee but receive no financial reward, is that more or less ethical that doing it just for the money?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
26
Would the lack of any financial reward make you more or less willing to consider being a whistle-blower? Why?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
27
If an employee blows the whistle on an organization on the basis of a rumor, is that ethical?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
28
If that information turns out to be false, should the employee be liable for damages? Explain your answer.
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
29
Compensation under Dodd-Frank isn't as clear as the percentage of the funds recovered for a government whistle-blower. Does that make it less likely that we'll see more whistle-blowing under Dodd-Frank?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
30
Under SOX, complaining to the media isn't recognized as whistle-blowing. Is that ethical?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
31
How should managers or supervisors respond to an employee who brings evidence of questionable behavior to their attention?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
32
Should that employee be given any reassurances of protection for making the tough decision to come forward?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
33
Do you think a hotline that guarantees the anonymity of the caller will encourage more employees to come forward?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
34
Does your company have a whistle-blower hotline? How did you find out that there is (or isn't) one?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
35
Birkenfeld is adamant that his prison sentence is unfair when compared to the fact that no one else (Olenicoff, UBS bankers) went to jail. Does he have a point?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
36
Why did UBS elect to settle with the U.S. Government?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
37
Given that there was an immunity agreement in place, what did the Justice Department gain from prosecuting Birkenfeld?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
38
Critics are concerned that Birkenfeld's prison sentence will discourage other tax whistle-blowers from coming forward. Is that a valid concern? Why or why not?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
39
OLYMPUS: PAYING A PRICE FOR DOING WHAT'S RIGHT?
Movies like Silkwood and The Insider have portrayed whistle-blowers as lone heroes on the front line or in middle management, working against corrupt organizations at great personal risk to their own well-being. At Olympus Corporation, the Japanese camera and medical equipment manufacturer, the story was dramatically different. The whistle-blower in this case was recently appointed Chief Executive Officer (CEO) Michael Woodford.
As the former head of both UK and U.S. operations for Olympus, Woodford's appointment as CEO in February 2011 was recognized as both the summation of a meteoric rise of a talented young executive and as a sign that the insular corporate culture of "Japan, Inc." was finally changing. Woodford had benefited greatly from the tutelage and mentorship of Olympus Chairman Tsuyoshi Kikukawa, which made the story of Woodford's first few months at the helm even more distressing.
As part of a regular review of Tokyo operations, Woodford began analyzing four separate acquisitions that Olympus had made between 2006 and 2009. Three of the four-a recycling company, a cosmetics company, and a food container company-had cost Olympus $1 billion, but their assets had already been written down to just a fraction of that on the balance sheet, indicating that they were considered to be of no real value to the corporation. Further investigation revealed that all three companies were registered in the Caribbean tax haven Cayman Islands. In addition, all three companies were dissolved and closed shortly after being acquired by Olympus.
The fourth company-a UK-based medical instruments company called Gyrus-was acquired for $2.2 billion in 2008. The purchase included a $687 million "transaction fee" to two investment bankers, with the funds going into a Cayman Islands account that was also closed shortly after the deal was concluded. Given that investmentbanking fees typically amount to only 1 percent of the transaction, a fee of almost 33 percent was suspicious enough to warrant an independent audit, which the Olympus board had authorized in October 2009. The audit report subsequently declared that the company's directors had done nothing wrong.
In an October 11, 2011, memo to Kikukawa, Michael Woodford expressed his suspicions that a series of clear accounting irregularities had destroyed "$1.3bn of shareholder value" in what he described as "a catalogue of calamitous errors and exceptionally poor judgment." The memo concluded with a call for Kikukawa to resign as chairman of Olympus Corporation. Three days later, Kikukawa and his board of directors responded by firing Woodford from his position as CEO.
Woodford's personal account of the days that followed his termination reads like a spy novel. Fearing for his life on the basis of a personal belief that the accounting scandal involved members of the yakuza -the Japanese mafia-Woodford left Japan for the United Kingdom very shortly afterward. It was later reported that Woodford was able to provide sufficient evidence to warrant investigation into his claims by the FBI, Scotland Yard's Serious Crime Unit, and Tokyo's Securities and Exchange Surveillance Commission.
After weeks of denials-and a disconcerting silence among Japan's regulators and mainstream media-the company was forced to concede in the face of incontrovertible evidence that it had misappropriated funds in order to hide investment losses dating back to the 1990s. Public promises were made to introduce a new Corporate Governance Committee and to release five years' worth of revised financial accounts. Kikukawa finally admitted to fraud and stepped down as chairman of Olympus Corporation. He, along with two other Olympus executives, will face up to 10 years in jail for his role in the scandal.
In June 2012, Olympus announced that its board of directors had approved a settlement offer with Woodford of 1.2 billion yen ($15.4 million) for unfair dismissal, but the financial impact of the scandal may be far from over. The stock price had plummeted by as much as 80 percent in the immediate postscandal period, and in November 2012, the company announced that 48 mostly foreign institutional investors and pension funds had filed a lawsuit seeking 19.1 billion yen ($240 million) in compensation for investment losses resulting from the revelation of accounting irregularities.
What accounting irregularities did Michael Woodford uncover at Olympus?
Movies like Silkwood and The Insider have portrayed whistle-blowers as lone heroes on the front line or in middle management, working against corrupt organizations at great personal risk to their own well-being. At Olympus Corporation, the Japanese camera and medical equipment manufacturer, the story was dramatically different. The whistle-blower in this case was recently appointed Chief Executive Officer (CEO) Michael Woodford.
As the former head of both UK and U.S. operations for Olympus, Woodford's appointment as CEO in February 2011 was recognized as both the summation of a meteoric rise of a talented young executive and as a sign that the insular corporate culture of "Japan, Inc." was finally changing. Woodford had benefited greatly from the tutelage and mentorship of Olympus Chairman Tsuyoshi Kikukawa, which made the story of Woodford's first few months at the helm even more distressing.
As part of a regular review of Tokyo operations, Woodford began analyzing four separate acquisitions that Olympus had made between 2006 and 2009. Three of the four-a recycling company, a cosmetics company, and a food container company-had cost Olympus $1 billion, but their assets had already been written down to just a fraction of that on the balance sheet, indicating that they were considered to be of no real value to the corporation. Further investigation revealed that all three companies were registered in the Caribbean tax haven Cayman Islands. In addition, all three companies were dissolved and closed shortly after being acquired by Olympus.
The fourth company-a UK-based medical instruments company called Gyrus-was acquired for $2.2 billion in 2008. The purchase included a $687 million "transaction fee" to two investment bankers, with the funds going into a Cayman Islands account that was also closed shortly after the deal was concluded. Given that investmentbanking fees typically amount to only 1 percent of the transaction, a fee of almost 33 percent was suspicious enough to warrant an independent audit, which the Olympus board had authorized in October 2009. The audit report subsequently declared that the company's directors had done nothing wrong.
In an October 11, 2011, memo to Kikukawa, Michael Woodford expressed his suspicions that a series of clear accounting irregularities had destroyed "$1.3bn of shareholder value" in what he described as "a catalogue of calamitous errors and exceptionally poor judgment." The memo concluded with a call for Kikukawa to resign as chairman of Olympus Corporation. Three days later, Kikukawa and his board of directors responded by firing Woodford from his position as CEO.
Woodford's personal account of the days that followed his termination reads like a spy novel. Fearing for his life on the basis of a personal belief that the accounting scandal involved members of the yakuza -the Japanese mafia-Woodford left Japan for the United Kingdom very shortly afterward. It was later reported that Woodford was able to provide sufficient evidence to warrant investigation into his claims by the FBI, Scotland Yard's Serious Crime Unit, and Tokyo's Securities and Exchange Surveillance Commission.
After weeks of denials-and a disconcerting silence among Japan's regulators and mainstream media-the company was forced to concede in the face of incontrovertible evidence that it had misappropriated funds in order to hide investment losses dating back to the 1990s. Public promises were made to introduce a new Corporate Governance Committee and to release five years' worth of revised financial accounts. Kikukawa finally admitted to fraud and stepped down as chairman of Olympus Corporation. He, along with two other Olympus executives, will face up to 10 years in jail for his role in the scandal.
In June 2012, Olympus announced that its board of directors had approved a settlement offer with Woodford of 1.2 billion yen ($15.4 million) for unfair dismissal, but the financial impact of the scandal may be far from over. The stock price had plummeted by as much as 80 percent in the immediate postscandal period, and in November 2012, the company announced that 48 mostly foreign institutional investors and pension funds had filed a lawsuit seeking 19.1 billion yen ($240 million) in compensation for investment losses resulting from the revelation of accounting irregularities.
What accounting irregularities did Michael Woodford uncover at Olympus?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
40
OLYMPUS: PAYING A PRICE FOR DOING WHAT'S RIGHT? Movies like Silkwood and The Insider have portrayed whistle-blowers as lone heroes on the front line or in middle management, working against corrupt organizations at great personal risk to their own well-being. At Olympus Corporation, the Japanese camera and medical equipment manufacturer, the story was dramatically different. The whistle-blower in this case was recently appointed Chief Executive Officer (CEO) Michael Woodford.
As the former head of both UK and U.S. operations for Olympus, Woodford's appointment as CEO in February 2011 was recognized as both the summation of a meteoric rise of a talented young executive and as a sign that the insular corporate culture of "Japan, Inc." was finally changing. Woodford had benefited greatly from the tutelage and mentorship of Olympus Chairman Tsuyoshi Kikukawa, which made the story of Woodford's first few months at the helm even more distressing.
As part of a regular review of Tokyo operations, Woodford began analyzing four separate acquisitions that Olympus had made between 2006 and 2009. Three of the four-a recycling company, a cosmetics company, and a food container company-had cost Olympus $1 billion, but their assets had already been written down to just a fraction of that on the balance sheet, indicating that they were considered to be of no real value to the corporation. Further investigation revealed that all three companies were registered in the Caribbean tax haven Cayman Islands. In addition, all three companies were dissolved and closed shortly after being acquired by Olympus.
The fourth company-a UK-based medical instruments company called Gyrus-was acquired for $2.2 billion in 2008. The purchase included a $687 million "transaction fee" to two investment bankers, with the funds going into a Cayman Islands account that was also closed shortly after the deal was concluded. Given that investmentbanking fees typically amount to only 1 percent of the transaction, a fee of almost 33 percent was suspicious enough to warrant an independent audit, which the Olympus board had authorized in October 2009. The audit report subsequently declared that the company's directors had done nothing wrong.
In an October 11, 2011, memo to Kikukawa, Michael Woodford expressed his suspicions that a series of clear accounting irregularities had destroyed "$1.3bn of shareholder value" in what he described as "a catalogue of calamitous errors and exceptionally poor judgment." The memo concluded with a call for Kikukawa to resign as chairman of Olympus Corporation. Three days later, Kikukawa and his board of directors responded by firing Woodford from his position as CEO.
Woodford's personal account of the days that followed his termination reads like a spy novel. Fearing for his life on the basis of a personal belief that the accounting scandal involved members of the yakuza -the Japanese mafia-Woodford left Japan for the United Kingdom very shortly afterward. It was later reported that Woodford was able to provide sufficient evidence to warrant investigation into his claims by the FBI, Scotland Yard's Serious Crime Unit, and Tokyo's Securities and Exchange Surveillance Commission.
After weeks of denials-and a disconcerting silence among Japan's regulators and mainstream media-the company was forced to concede in the face of incontrovertible evidence that it had misappropriated funds in order to hide investment losses dating back to the 1990s. Public promises were made to introduce a new Corporate Governance Committee and to release five years' worth of revised financial accounts. Kikukawa finally admitted to fraud and stepped down as chairman of Olympus Corporation. He, along with two other Olympus executives, will face up to 10 years in jail for his role in the scandal.
In June 2012, Olympus announced that its board of directors had approved a settlement offer with Woodford of 1.2 billion yen ($15.4 million) for unfair dismissal, but the financial impact of the scandal may be far from over. The stock price had plummeted by as much as 80 percent in the immediate postscandal period, and in November 2012, the company announced that 48 mostly foreign institutional investors and pension funds had filed a lawsuit seeking 19.1 billion yen ($240 million) in compensation for investment losses resulting from the revelation of accounting irregularities.
How did the executive leadership respond to Woodford's revelations?
As the former head of both UK and U.S. operations for Olympus, Woodford's appointment as CEO in February 2011 was recognized as both the summation of a meteoric rise of a talented young executive and as a sign that the insular corporate culture of "Japan, Inc." was finally changing. Woodford had benefited greatly from the tutelage and mentorship of Olympus Chairman Tsuyoshi Kikukawa, which made the story of Woodford's first few months at the helm even more distressing.
As part of a regular review of Tokyo operations, Woodford began analyzing four separate acquisitions that Olympus had made between 2006 and 2009. Three of the four-a recycling company, a cosmetics company, and a food container company-had cost Olympus $1 billion, but their assets had already been written down to just a fraction of that on the balance sheet, indicating that they were considered to be of no real value to the corporation. Further investigation revealed that all three companies were registered in the Caribbean tax haven Cayman Islands. In addition, all three companies were dissolved and closed shortly after being acquired by Olympus.
The fourth company-a UK-based medical instruments company called Gyrus-was acquired for $2.2 billion in 2008. The purchase included a $687 million "transaction fee" to two investment bankers, with the funds going into a Cayman Islands account that was also closed shortly after the deal was concluded. Given that investmentbanking fees typically amount to only 1 percent of the transaction, a fee of almost 33 percent was suspicious enough to warrant an independent audit, which the Olympus board had authorized in October 2009. The audit report subsequently declared that the company's directors had done nothing wrong.
In an October 11, 2011, memo to Kikukawa, Michael Woodford expressed his suspicions that a series of clear accounting irregularities had destroyed "$1.3bn of shareholder value" in what he described as "a catalogue of calamitous errors and exceptionally poor judgment." The memo concluded with a call for Kikukawa to resign as chairman of Olympus Corporation. Three days later, Kikukawa and his board of directors responded by firing Woodford from his position as CEO.
Woodford's personal account of the days that followed his termination reads like a spy novel. Fearing for his life on the basis of a personal belief that the accounting scandal involved members of the yakuza -the Japanese mafia-Woodford left Japan for the United Kingdom very shortly afterward. It was later reported that Woodford was able to provide sufficient evidence to warrant investigation into his claims by the FBI, Scotland Yard's Serious Crime Unit, and Tokyo's Securities and Exchange Surveillance Commission.
After weeks of denials-and a disconcerting silence among Japan's regulators and mainstream media-the company was forced to concede in the face of incontrovertible evidence that it had misappropriated funds in order to hide investment losses dating back to the 1990s. Public promises were made to introduce a new Corporate Governance Committee and to release five years' worth of revised financial accounts. Kikukawa finally admitted to fraud and stepped down as chairman of Olympus Corporation. He, along with two other Olympus executives, will face up to 10 years in jail for his role in the scandal.
In June 2012, Olympus announced that its board of directors had approved a settlement offer with Woodford of 1.2 billion yen ($15.4 million) for unfair dismissal, but the financial impact of the scandal may be far from over. The stock price had plummeted by as much as 80 percent in the immediate postscandal period, and in November 2012, the company announced that 48 mostly foreign institutional investors and pension funds had filed a lawsuit seeking 19.1 billion yen ($240 million) in compensation for investment losses resulting from the revelation of accounting irregularities.
How did the executive leadership respond to Woodford's revelations?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
41
OLYMPUS: PAYING A PRICE FOR DOING WHAT'S RIGHT? Movies like Silkwood and The Insider have portrayed whistle-blowers as lone heroes on the front line or in middle management, working against corrupt organizations at great personal risk to their own well-being. At Olympus Corporation, the Japanese camera and medical equipment manufacturer, the story was dramatically different. The whistle-blower in this case was recently appointed Chief Executive Officer (CEO) Michael Woodford.
As the former head of both UK and U.S. operations for Olympus, Woodford's appointment as CEO in February 2011 was recognized as both the summation of a meteoric rise of a talented young executive and as a sign that the insular corporate culture of "Japan, Inc." was finally changing. Woodford had benefited greatly from the tutelage and mentorship of Olympus Chairman Tsuyoshi Kikukawa, which made the story of Woodford's first few months at the helm even more distressing.
As part of a regular review of Tokyo operations, Woodford began analyzing four separate acquisitions that Olympus had made between 2006 and 2009. Three of the four-a recycling company, a cosmetics company, and a food container company-had cost Olympus $1 billion, but their assets had already been written down to just a fraction of that on the balance sheet, indicating that they were considered to be of no real value to the corporation. Further investigation revealed that all three companies were registered in the Caribbean tax haven Cayman Islands. In addition, all three companies were dissolved and closed shortly after being acquired by Olympus.
The fourth company-a UK-based medical instruments company called Gyrus-was acquired for $2.2 billion in 2008. The purchase included a $687 million "transaction fee" to two investment bankers, with the funds going into a Cayman Islands account that was also closed shortly after the deal was concluded. Given that investmentbanking fees typically amount to only 1 percent of the transaction, a fee of almost 33 percent was suspicious enough to warrant an independent audit, which the Olympus board had authorized in October 2009. The audit report subsequently declared that the company's directors had done nothing wrong.
In an October 11, 2011, memo to Kikukawa, Michael Woodford expressed his suspicions that a series of clear accounting irregularities had destroyed "$1.3bn of shareholder value" in what he described as "a catalogue of calamitous errors and exceptionally poor judgment." The memo concluded with a call for Kikukawa to resign as chairman of Olympus Corporation. Three days later, Kikukawa and his board of directors responded by firing Woodford from his position as CEO.
Woodford's personal account of the days that followed his termination reads like a spy novel. Fearing for his life on the basis of a personal belief that the accounting scandal involved members of the yakuza -the Japanese mafia-Woodford left Japan for the United Kingdom very shortly afterward. It was later reported that Woodford was able to provide sufficient evidence to warrant investigation into his claims by the FBI, Scotland Yard's Serious Crime Unit, and Tokyo's Securities and Exchange Surveillance Commission.
After weeks of denials-and a disconcerting silence among Japan's regulators and mainstream media-the company was forced to concede in the face of incontrovertible evidence that it had misappropriated funds in order to hide investment losses dating back to the 1990s. Public promises were made to introduce a new Corporate Governance Committee and to release five years' worth of revised financial accounts. Kikukawa finally admitted to fraud and stepped down as chairman of Olympus Corporation. He, along with two other Olympus executives, will face up to 10 years in jail for his role in the scandal.
In June 2012, Olympus announced that its board of directors had approved a settlement offer with Woodford of 1.2 billion yen ($15.4 million) for unfair dismissal, but the financial impact of the scandal may be far from over. The stock price had plummeted by as much as 80 percent in the immediate postscandal period, and in November 2012, the company announced that 48 mostly foreign institutional investors and pension funds had filed a lawsuit seeking 19.1 billion yen ($240 million) in compensation for investment losses resulting from the revelation of accounting irregularities.
Critics argue that Woodford could have been more effective if he had taken a longer-term approach to addressing the accounting scandal, rather than the "showdown" approach he took with Kikukawa. Is that a fair assessment? Why or why not?
As the former head of both UK and U.S. operations for Olympus, Woodford's appointment as CEO in February 2011 was recognized as both the summation of a meteoric rise of a talented young executive and as a sign that the insular corporate culture of "Japan, Inc." was finally changing. Woodford had benefited greatly from the tutelage and mentorship of Olympus Chairman Tsuyoshi Kikukawa, which made the story of Woodford's first few months at the helm even more distressing.
As part of a regular review of Tokyo operations, Woodford began analyzing four separate acquisitions that Olympus had made between 2006 and 2009. Three of the four-a recycling company, a cosmetics company, and a food container company-had cost Olympus $1 billion, but their assets had already been written down to just a fraction of that on the balance sheet, indicating that they were considered to be of no real value to the corporation. Further investigation revealed that all three companies were registered in the Caribbean tax haven Cayman Islands. In addition, all three companies were dissolved and closed shortly after being acquired by Olympus.
The fourth company-a UK-based medical instruments company called Gyrus-was acquired for $2.2 billion in 2008. The purchase included a $687 million "transaction fee" to two investment bankers, with the funds going into a Cayman Islands account that was also closed shortly after the deal was concluded. Given that investmentbanking fees typically amount to only 1 percent of the transaction, a fee of almost 33 percent was suspicious enough to warrant an independent audit, which the Olympus board had authorized in October 2009. The audit report subsequently declared that the company's directors had done nothing wrong.
In an October 11, 2011, memo to Kikukawa, Michael Woodford expressed his suspicions that a series of clear accounting irregularities had destroyed "$1.3bn of shareholder value" in what he described as "a catalogue of calamitous errors and exceptionally poor judgment." The memo concluded with a call for Kikukawa to resign as chairman of Olympus Corporation. Three days later, Kikukawa and his board of directors responded by firing Woodford from his position as CEO.
Woodford's personal account of the days that followed his termination reads like a spy novel. Fearing for his life on the basis of a personal belief that the accounting scandal involved members of the yakuza -the Japanese mafia-Woodford left Japan for the United Kingdom very shortly afterward. It was later reported that Woodford was able to provide sufficient evidence to warrant investigation into his claims by the FBI, Scotland Yard's Serious Crime Unit, and Tokyo's Securities and Exchange Surveillance Commission.
After weeks of denials-and a disconcerting silence among Japan's regulators and mainstream media-the company was forced to concede in the face of incontrovertible evidence that it had misappropriated funds in order to hide investment losses dating back to the 1990s. Public promises were made to introduce a new Corporate Governance Committee and to release five years' worth of revised financial accounts. Kikukawa finally admitted to fraud and stepped down as chairman of Olympus Corporation. He, along with two other Olympus executives, will face up to 10 years in jail for his role in the scandal.
In June 2012, Olympus announced that its board of directors had approved a settlement offer with Woodford of 1.2 billion yen ($15.4 million) for unfair dismissal, but the financial impact of the scandal may be far from over. The stock price had plummeted by as much as 80 percent in the immediate postscandal period, and in November 2012, the company announced that 48 mostly foreign institutional investors and pension funds had filed a lawsuit seeking 19.1 billion yen ($240 million) in compensation for investment losses resulting from the revelation of accounting irregularities.
Critics argue that Woodford could have been more effective if he had taken a longer-term approach to addressing the accounting scandal, rather than the "showdown" approach he took with Kikukawa. Is that a fair assessment? Why or why not?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
42
OLYMPUS: PAYING A PRICE FOR DOING WHAT'S RIGHT? Movies like Silkwood and The Insider have portrayed whistle-blowers as lone heroes on the front line or in middle management, working against corrupt organizations at great personal risk to their own well-being. At Olympus Corporation, the Japanese camera and medical equipment manufacturer, the story was dramatically different. The whistle-blower in this case was recently appointed Chief Executive Officer (CEO) Michael Woodford.
As the former head of both UK and U.S. operations for Olympus, Woodford's appointment as CEO in February 2011 was recognized as both the summation of a meteoric rise of a talented young executive and as a sign that the insular corporate culture of "Japan, Inc." was finally changing. Woodford had benefited greatly from the tutelage and mentorship of Olympus Chairman Tsuyoshi Kikukawa, which made the story of Woodford's first few months at the helm even more distressing.
As part of a regular review of Tokyo operations, Woodford began analyzing four separate acquisitions that Olympus had made between 2006 and 2009. Three of the four-a recycling company, a cosmetics company, and a food container company-had cost Olympus $1 billion, but their assets had already been written down to just a fraction of that on the balance sheet, indicating that they were considered to be of no real value to the corporation. Further investigation revealed that all three companies were registered in the Caribbean tax haven Cayman Islands. In addition, all three companies were dissolved and closed shortly after being acquired by Olympus.
The fourth company-a UK-based medical instruments company called Gyrus-was acquired for $2.2 billion in 2008. The purchase included a $687 million "transaction fee" to two investment bankers, with the funds going into a Cayman Islands account that was also closed shortly after the deal was concluded. Given that investmentbanking fees typically amount to only 1 percent of the transaction, a fee of almost 33 percent was suspicious enough to warrant an independent audit, which the Olympus board had authorized in October 2009. The audit report subsequently declared that the company's directors had done nothing wrong.
In an October 11, 2011, memo to Kikukawa, Michael Woodford expressed his suspicions that a series of clear accounting irregularities had destroyed "$1.3bn of shareholder value" in what he described as "a catalogue of calamitous errors and exceptionally poor judgment." The memo concluded with a call for Kikukawa to resign as chairman of Olympus Corporation. Three days later, Kikukawa and his board of directors responded by firing Woodford from his position as CEO.
Woodford's personal account of the days that followed his termination reads like a spy novel. Fearing for his life on the basis of a personal belief that the accounting scandal involved members of the yakuza -the Japanese mafia-Woodford left Japan for the United Kingdom very shortly afterward. It was later reported that Woodford was able to provide sufficient evidence to warrant investigation into his claims by the FBI, Scotland Yard's Serious Crime Unit, and Tokyo's Securities and Exchange Surveillance Commission.
After weeks of denials-and a disconcerting silence among Japan's regulators and mainstream media-the company was forced to concede in the face of incontrovertible evidence that it had misappropriated funds in order to hide investment losses dating back to the 1990s. Public promises were made to introduce a new Corporate Governance Committee and to release five years' worth of revised financial accounts. Kikukawa finally admitted to fraud and stepped down as chairman of Olympus Corporation. He, along with two other Olympus executives, will face up to 10 years in jail for his role in the scandal.
In June 2012, Olympus announced that its board of directors had approved a settlement offer with Woodford of 1.2 billion yen ($15.4 million) for unfair dismissal, but the financial impact of the scandal may be far from over. The stock price had plummeted by as much as 80 percent in the immediate postscandal period, and in November 2012, the company announced that 48 mostly foreign institutional investors and pension funds had filed a lawsuit seeking 19.1 billion yen ($240 million) in compensation for investment losses resulting from the revelation of accounting irregularities.
Can Olympus recover from this scandal? Why or why not?
Sources: The Economist, "The Olympus Scandal: Paying a Price for Doing What's Right," November 24, 2012; Bill Powell, "A Rotten Picture at Olympus," Time, December 12, 2012, and "Scandal at Olympus: The CEO Who Knew Too Much," Time, October 28, 2011; Michael Woodford, Exposure: Inside the Olympus Scandal: How I Went from CEO to Whistleblower (Portfolio, November 2012); Yuri Kageyama, "Olympus Whistleblower Wins Millions in Settlement," Bloomberg Businessweek, June 8, 2012; and Associated Press, "Olympus Investors Seek $240 Million Compensation," November 13, 2012.
As the former head of both UK and U.S. operations for Olympus, Woodford's appointment as CEO in February 2011 was recognized as both the summation of a meteoric rise of a talented young executive and as a sign that the insular corporate culture of "Japan, Inc." was finally changing. Woodford had benefited greatly from the tutelage and mentorship of Olympus Chairman Tsuyoshi Kikukawa, which made the story of Woodford's first few months at the helm even more distressing.
As part of a regular review of Tokyo operations, Woodford began analyzing four separate acquisitions that Olympus had made between 2006 and 2009. Three of the four-a recycling company, a cosmetics company, and a food container company-had cost Olympus $1 billion, but their assets had already been written down to just a fraction of that on the balance sheet, indicating that they were considered to be of no real value to the corporation. Further investigation revealed that all three companies were registered in the Caribbean tax haven Cayman Islands. In addition, all three companies were dissolved and closed shortly after being acquired by Olympus.
The fourth company-a UK-based medical instruments company called Gyrus-was acquired for $2.2 billion in 2008. The purchase included a $687 million "transaction fee" to two investment bankers, with the funds going into a Cayman Islands account that was also closed shortly after the deal was concluded. Given that investmentbanking fees typically amount to only 1 percent of the transaction, a fee of almost 33 percent was suspicious enough to warrant an independent audit, which the Olympus board had authorized in October 2009. The audit report subsequently declared that the company's directors had done nothing wrong.
In an October 11, 2011, memo to Kikukawa, Michael Woodford expressed his suspicions that a series of clear accounting irregularities had destroyed "$1.3bn of shareholder value" in what he described as "a catalogue of calamitous errors and exceptionally poor judgment." The memo concluded with a call for Kikukawa to resign as chairman of Olympus Corporation. Three days later, Kikukawa and his board of directors responded by firing Woodford from his position as CEO.
Woodford's personal account of the days that followed his termination reads like a spy novel. Fearing for his life on the basis of a personal belief that the accounting scandal involved members of the yakuza -the Japanese mafia-Woodford left Japan for the United Kingdom very shortly afterward. It was later reported that Woodford was able to provide sufficient evidence to warrant investigation into his claims by the FBI, Scotland Yard's Serious Crime Unit, and Tokyo's Securities and Exchange Surveillance Commission.
After weeks of denials-and a disconcerting silence among Japan's regulators and mainstream media-the company was forced to concede in the face of incontrovertible evidence that it had misappropriated funds in order to hide investment losses dating back to the 1990s. Public promises were made to introduce a new Corporate Governance Committee and to release five years' worth of revised financial accounts. Kikukawa finally admitted to fraud and stepped down as chairman of Olympus Corporation. He, along with two other Olympus executives, will face up to 10 years in jail for his role in the scandal.
In June 2012, Olympus announced that its board of directors had approved a settlement offer with Woodford of 1.2 billion yen ($15.4 million) for unfair dismissal, but the financial impact of the scandal may be far from over. The stock price had plummeted by as much as 80 percent in the immediate postscandal period, and in November 2012, the company announced that 48 mostly foreign institutional investors and pension funds had filed a lawsuit seeking 19.1 billion yen ($240 million) in compensation for investment losses resulting from the revelation of accounting irregularities.
Can Olympus recover from this scandal? Why or why not?
Sources: The Economist, "The Olympus Scandal: Paying a Price for Doing What's Right," November 24, 2012; Bill Powell, "A Rotten Picture at Olympus," Time, December 12, 2012, and "Scandal at Olympus: The CEO Who Knew Too Much," Time, October 28, 2011; Michael Woodford, Exposure: Inside the Olympus Scandal: How I Went from CEO to Whistleblower (Portfolio, November 2012); Yuri Kageyama, "Olympus Whistleblower Wins Millions in Settlement," Bloomberg Businessweek, June 8, 2012; and Associated Press, "Olympus Investors Seek $240 Million Compensation," November 13, 2012.
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
43
Was it ethical for Apotex to include a three-year gag clause in the agreement with Dr. Olivieri?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
44
Even though Dr. Olivieri later admitted that she should never have signed the agreement with Apotex that included a confidentiality clause, does the fact that she did sign it have any bearing on her actions here? Why or why not?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
45
Was Olivieri's decision to publish her findings about the trial an example of universalism or utilitarianism? Explain your answer.
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
46
If we identify the key players in this case as Dr. Olivieri, Apotex, the Hospital for Sick Children, and the University of Toronto, what are the conflicts of interest between them all?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
47
What do you think would have happened if Dr. Olivieri's fellow academics had not supported her in her fight?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
48
How could this situation have been handled differently to avoid such a lengthy and bitter battle?
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
Unlock Deck
k this deck
Unlock Deck
Unlock for access to all 48 flashcards in this deck.
