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 man-

agement, working against corrupt organizations at great personal risk to their own well-being. At Olympus Corp., the

Japanese camera and medical equipment manufacturer, the story was dramatically different. The whistle-blower in this

case was recently appointed Chief Executive Officer 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, Wood-ford began analyzing four separate acquisitions that Olympus had made between 2006 and 2009. Three of the foura recycling company, a cosmetics company, and a food container companyhad 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 companya UK-based medical instruments company called Gyruswas 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 investment-banking 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, Woodford expressed his suspicions that a series of clear accounting irregularities had destroyed $1.3 billion 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 Corp. 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 mafiaWoodford 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 denialsand a disconcerting silence among Japan's regulators and mainstream mediathe 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. He along with two other Olympus executives, former executive vice president Hisashi Mori and

former auditing officer Hideo Yamada, faced up to 10 years in jail for their roles 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 was far from over. The stock price had plummeted by as much as 80 percent in the immediate post-scandal 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. In July 2013, all three former executives were given suspended sentences, serving no jail time for their roles in the accounting scandal. Kikukawa and Yamada were given three-year sentences, and Mori a two-and-a-half-year sentence. Olympus Corp. was ordered to pay $7 million in fines for its role. Olympus showed early signs of recovering quickly from the scandal. By the time it announced a joint venture with electronics giant Sony to capture a larger share of the global medical equipment market, profits were rising and the share price had recovered most of the earlier losses. However, the recovery appeared to be short-lived. Just two years after the alliance, Sony agreed to sell half its stake in Olympus to JPMorgan Chase for $600 million,

booking an estimated $300 million profit from the investment. The funds were to be used "to strengthen our financial

base and for growth investments."In March 2016, Olympus agreed to pay $646 million to resolve FCPA charges that kickbacks were paid to U.S. doctors in the purchase of medical devices. A further $22.8 million was paid to resolve a DOJ criminal case involving bribes to

health care providers in Latin America.

1. What accounting irregularities did Michael Woodford uncover at Olympus?

2. How did the executive leadership respond to Woodford's revelations?

3. 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?

4. After the 2012 accounting scandal, Olympus Corp. committed to a major overhaul of its accounting practices.

What do the 2016 settlements convey about that overhaul?