Question

1. What is the nature of fraud in Olympus?
2. How similar and different is it with Toshiba and Nissan?
3. What are the responsibilities of external and internal parties at Olympus?
4. What changes in corporate governance do you recommend?

Answer 1

1. Founded on Oct 12,1919 by Takeshi Yamashita. First main purpose was specializing in thermometer and microscopes. In 1923 it became Olympus. Now specializing in Cameras and medical devices.

The scandal was-

- Michael Woodford went from CEO to Whistleblower. Olympus bought 3 companies in 2008 for $800 mn, only to write down three- quarters of their value by the end of financial year.

Gave nearly $700 mn in "advisory fees" to an entity in the Cayman Islands whose ownership and legal standing were unclear.

Mr Woodford learned about the allegations through a Japanese business magazine.

The issues were never brought up in meetings within the company.Media was not biased but neutral. Stated all facts clearly. Long term employees felt betrayed angry and shocked. Customers also felt betrayed. Government tried to cover up the allegations.

2. Nissan Motor might be a unique one-off for corporate Japan to be blasted away..Just two days after the carmaker was making headlines with the arrest of chairman Carlos Ghosn for alleged financial wrongdoing, camera maker Olympus delivered a stark reminder of a 2011 accounting fraud.

In between, Toshiba gallery the 143 years old electronics conglomerate got exposed for overstating operating profits by atleast $1.2 bn over several years.

3.The internal audit team was hindered due to the business culture of Japan; despite being aware of or suspicious of the practices taking place, employees were not empowered to expose the improper accounting techniques being utilised.

Conversely the external audit company, KPMG , questioned Olympus's top management about the goodwill figy in the statement of financial position and huge advisory fees. After the persistent questioning, KPMG discovered Olympus manipulated accounting treatment; but management had come up with excuses to switch the auditor's concern. Furthermore it replaced KPMG with E&Y as it's external auditor when questionable transactions were challenged.

Olympus hindered proper audits by providing incomplete documents and counterfeit statement.

4. Corporate Governance- the rules on how companies should be managed has long been an issue for foreign investors in Japanese firms Shared supposedly represent fractional ownership interest in the company that issued them. Yet outsiders who become significant owners of Japanese companies often find themselves given the cold soldier, not being allowed to appoint directors or otherwise have a say in corporate affairs commensurate with their ownership.