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OLYMPUS – lights, camera, (re)action

by: (Associate Director, Research and Development) on

Reduce, Re-use, Recycle.

That’s the mantra of Bob the Builder (he’s a children’s cartoon character in the UK for the benefit of our international readers!)

Bob is maybe not considered to be one of the key figures in the inspirational leadership arena, but he does a good job with Scoop, Muck, Dizzy and co.

This reference may seem an odd way to start a blog, but the reason is that an unabridged version of the below first appeared in the ICA quarterly publication inCOMPLIANCE in Spring 2012.

There have, of course, been various developments in the story since then. But what prompted me to re-use the piece I wrote earlier in the year was that last week, the trial began of three former Olympus executives, who have pleaded guilty to taking part in the $1.7bn (£1bn) accounting scandal.

So here goes…

Begin at the beginning

In late 2011, an extremely high profile case study presented itself – one which encompasses a number of themes, across more than one of the programmes offered by ICT.

On Friday 14 October 2011, Michael Woodford was abruptly sacked from his role as CEO of Olympus. He had only spent two weeks in the position.  Mr Woodford promptly turned whistleblower and claimed he had been relieved of his duties after he questioned the massive advisory fee paid by Olympus in its acquisition of British medical equipment firm Gyrus in 2008.

The cost of the purchase of Gyrus was around $2bn, with the advisory fee being reported at $687mn, which equated roughly to 35% of the total sum (a usual amount would be 1 or 2%).

Hiding losses  

By early November 2011, Olympus admitted it had been hiding losses on securities investments for decades and that it had used funds related to past mergers and acquisitions (M&As) to cover these losses.

The Tokyo Metropolitan Police were reported to have launched an investigation into Olympus for the possible violation of financial laws and Japans securities and exchange surveillance commission (SEC) were also said to be looking at the case.

Olympus missed its financial reporting deadline of 14 November 2011, by when it was supposed to have submitted a quarterly earnings report. The Tokyo Stock Exchange gave Olympus until 14 December 2011, or face being delisted.

Reports and raids

Olympus managed to file revised earning reports by 14 December 2011 (although cutting it fine, apparently submitting them only a number of hours before the deadline). 

As it transpired, the accounts demonstrated a six month loss (to the end of September 2011) of $414mn. It also revised the value of its net assets down to 46bn yen – a significant decrease from the stated March 2007 figure of 225bn yen. 

A few days before Christmas, Japanese prosecutors raided the headquarters of Olympus. This was considered by some commentators as significant, as this course of action was undertaken rather than a simple request for documents being made. It did of course, from a PR perspective, also demonstrate to the global media that the Japanese authorities were taking the incident very seriously.

Arrests

In February 2012, four months after the scandal broke, police and prosecutors arrested four men on suspicion of violating the Financial Instruments and Exchange Law. These included an ex-President of Olympus, an ex-Executive Vice President of Olympus, and a former Olympus auditor. It is these men whose trial has just commenced.

…. A case study

On reviewing the case of Olympus, there were a variety of issues which emerged:

  • Corporate Governance
  • Culture
  • Ethics
  • Principles versus rules-based regulation
  • Fraud & Financial Crime
  • Predicate AML crimes
  • Systems & Controls
  • The role of Auditors
  • The role of Regulators
  • The commercial benefits of compliance; and
  • The legal & regulatory frameworks involved.

All of these are key concepts in the ‘real life’ of a professional.

Unfortunately I don’t have space to go into any more depth here, but I’d encourage you to have a look into some more of the details, as it was really quite interesting to see who in the world got involved and why.

I’d like to repeat my final camera related pun too: “let’s see what develops”.

It sounded better at the time. I’m not sure even Bob the Builder would be proud of that one…

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