Question

Review information for Olympus (Case 22)Preview the document, then answer the following questions in accordance with the criteria below (Write 150 word minimum for each question, points will be deducted if each question does not meet the minimum 150-word required for each question): If Olympus is found guilty, will the fine of $17.3 million be enough? Why or why not? Ethics hotlines can be an effective resource for identifying unethical actions in a company. Why, in your opinion, did Olympus allow the hotline to be run internally? Japanese culture seems to play a large role in this case. Explain the concept of due diligence and how it differs in American culture. What stakeholders are affected in this case, other than the shareholders?

Answer 1

1. If Olympus is found guilty, will the fine of $17.3 million be enough? Why or why not?

A fine of $17.3 million for Olympus, if found guilty, is enough. Fines for various offences including falsification of financial statements are determined by the courts and as observers; there is little we can do. The amount of fine will differ from case to case and from jurisdiction to jurisdiction. For example, Kara Scannell (2016) in an article in the Financial Times reported that Deloitte Brazil was fined $8 million for falsifying documents and altering documents while the Mexican branch of Deloitte was fined $750,000 for altering documents in a different audit. In 2015, Toshiba was fined ¥7.3 billion ($64.7 million) for falsifying its financials, according to a 2015 article in the Japan Times.

However, these fines may not be enough if the Accountable Executives of Olympus are left scot-free. Like it has been mentioned in the case study that some former executives were convicted and sentenced, it is the right thing to do considering that issues of ethics and integrity in an organisation are created by people and in this case, the executives.

2. Ethics hotlines can be an effective resource for identifying unethical actions in a company. Why, in your opinion, did Olympus allow the hotline to be run internally?

The reason why Olympus allowed its hotline to be managed internally is because management knew that what they were doing was against ethical code of conduct and firstly, they wanted to know who was whistle blowing as they did not tolerate anonymous callers, so that they possibly victimize, the whistle blower if they are from within the organisation and secondly conceal any received unethical conduct whistle blowing so that the information does not go out to the public and ultimately the financial crime regulators. Strategically, the people who were masterminds of the financial fraud were in charge of the hotline effectively managing all the tips relating to their activities by preventing or blocking them from filtering to the public.

The Olympus case is one we can relate with the Firm Level Antecedents where “the senior leaders set the ethical examples…by talking the talk and walking the walk…they give their implicit and sometimes explicit support for unethical activities…” (Peter Stanwick and Sarah Stanwick, 2013, p74). This antecedent is demonstrated in the case study is when the appointed “panel’s report described top-level managers as a one-man system in which no one could challenge or object to the president….the panel concluded that it appeared that the top-level executives at Olympus did not care and were not concerned with the fraud that was taking place”.

3. Japanese culture seems to play a large role in this case. Explain the concept of due diligence and how it differs in American culture.

According to the Economic times, “due diligence is the process of examining all the material facts of a contract or a deal before a legal contract is signed by both the parties”. This means that due diligence is used to investigate all relevant aspects of the past, present and future of the target business opportunity.

Indeed it seems the Japanese culture played a significant role in this case study where it is mentioned that trust is enough for due diligence along with harmony and consensus. It seems the culture is never to challenge the managers and executives in any given situations but take it as told. This could have played a big role in the dismissal of Michael Woodford as he was trying to change the culture that many believed in and were not ready for that change.

In contrast to the American culture, due diligence in America does not depend on trust and consensus, but on a criteria that is set by an interested party. Due diligence therefore, is a process using predefined checklist by the party interested in order to satisfy its stakeholders. For example, due diligence in a merger and acquisition transaction will be based on “the nature and extent of the target company’s contingent liabilities, problematic contracts, litigation risks and intellectual property issues, and much more” (Richard D. Harroch and David A. Lipkin, 2014). In this case, the buyer will have to make a decision based on their own findings and not what they have been told by the target company.

4. What stakeholders are affected in this case, other than the shareholders?

The stake holders that are affected in the Olympus case include the following: the four acquisitions by Olympus that occurred between 2006 – 2008, the board of directors that had 12 of the 15 members being Olympus executives who were loyal to the Olypus President, Olympus clients who were used to clean up the financial statements by making fake transfers to them, the outside panel appointed by Olympus to understand the cause and scope of the scandal, external auditors KPMG and Ernst & Young, the Japanese regulatory authorities who raided the headquarters of Olympus in Tokyo, the Japanese prosecutors who filed charges against Olympus, former and current employees, the potential investors who had interest in the goings on in the firm and many more.