Michael Woodford arriving at the Tokyo headquarters of Olympus (photo: Bloomberg via Getty Images)
On 20th April, wearing his late father’s cufflinks for luck, Michael Woodford, the former president of Olympus in Japan, took a taxi from Shinjuku to Akasaka. For seven months, accounts of his courage and tenacity had captured the public imagination in Japan and around the world. Even hard news reporting of his story and exit from the company was laced with awe. Before leaving the Park Hyatt that morning, a Japanese MP told the 51-year-old Liverpudlian that he was praying for him.
To the now familiar volley of flashbulbs and questions, Woodford, the world famous whistle-blower, stepped out of the cab and into the Hotel New Otani. About to begin in the ballroom was an Extraordinary General Meeting of Olympus, the iconic camera and electronics company eviscerated by a $1.7bn fraud. Events set in motion that day would lead to three of Olympus’s top executives, Hisashi Mori, Hideo Yamata and Tsuyoshi Kikakawa, the former president of the company, pleading guilty in court to filing false financial reports.
Olympus had been writhing in scandal—initially behind closed doors, and then beneath the horrified glare of global media and markets. In late 2011, Japanese investigators at the Securities and Exchange Surveillance Commission are reported to have considered the possibility that organised crime syndicates were involved. Even though no link was established, with every new twist, the Olympus story posed new and unsettling questions about Japan, each of them imbued with a sense that nothing could quite be trusted.
By April, Woodford was an exhausted and damaged man. The company’s president—who started work in a British subsidiary of Olympus as a salesman in his early 20s and rose steadily over 30 years—was driven on by his outrage.
Minutes after Woodford arrived at the New Otani Hotel, perhaps the most tumultuous shareholder meeting in Japanese corporate history was underway. Shuichi Takayama, the company’s third president in a year, was preparing to step down and leave the management of the shattered company to a new board.
This “new” Olympus was supposedly a chastened creature, tamed by the exposure of its crimes and lies. Takayama ground through a speech that promised a clean rebirth. The board bowed deeply, apologising as one.
“You arseholes!” screamed a shareholder, incensed by the near annihilation of the company’s stock price, “If you think that’s going to make a difference, you’re wrong!”
The outburst, a surprise venting of righteous rage by a Japanese investor, was a glimpse at what Japan might become with a little more practice at truculence.
As the barracking of the new board intensified, Woodford was finally called upon to put a question to the “new” Olympus. He wanted to know whether the new board believed that his sudden sacking in October had been unjust. If it did, judged Woodford, then perhaps there was hope that lessons had sunk in and things could move forward at the company he still loved. If not, then the whole Olympus imbroglio was just another sad little splutter in Japan’s decline.
The question was dodged. Triumphant in defeat, Woodford left the ballroom to chants of “Michael! Michael! Michael!”
Outside, he spoke to the press. He snarled at the timidity of Japan’s media, the infuriating silence of its institutional shareholders, the passivity of its regulators and, ultimately, the failure of the whole affair to make any sense to him. “What we’ve just witnessed was a mockery,” he said. “It’s why the world looks on and continues to think that Japan works in a completely different way. It’s Alice in Wonderland.” It was a comparison he had been making for months and which pervades his new account of these events, Exposure: Inside the Olympus Scandal.
The tirade was unquestionably what the world had wanted to hear that day from Woodford the superstar whistle-blower. Nestled in that impassioned rant outside the New Otani were the revenge fantasies of every foreigner who had ever howled in frustration at the damnable Japaneseness of Japan.
And it was a reminder that, from the very beginning, this had been a crisis begging to be parsed as Japan in microcosm. Japan is oddly prone to grand theorising. Olympus’s fraud and the company’s reaction to being caught disguising massive losses on speculative trades could be made to fit almost every theoretical template out there. For those that see Japan as a swirl of unique cultural impulses or a basket case of shoddy corporate governance, here was proof. For those that see rancid deceit behind exquisite edifice or identify a culture of instinctive cover-ups, cronyism and corrosive deference, here was the big reveal. For those that see the tattooed, nine-fingered hands of the yakuza (organised crime gangs) in every shadow, as Woodford did at one point, there was enough to suggest at least an indirect connection.
Critical to all those interpretations is a narrative that views Woodford as the sole whistle-blower and holds that, without his determination and sacrifice, Japan on its own would never have allowed all that malfeasance to come to light. Woodford’s book is billed as such. It is marinated in resentment, but beneath Exposure’s noisy cascade of emotion and confrontation, the author himself ends up inadvertently puncturing the myth of the single-handed gaijin (foreign) hero.
* * *
Woodford’s story begins with the arrival of an email in July 2011—a “tiny time bomb… that was to change my life forever.” At this point, he had been president of one of Japan’s largest and most famous companies for just four months. To Woodford’s dismay, the chairmanship and CEO roles were still held by Tsuyoshi Kikukawa, a figure transformed over the course of his narrative from benign mentor to “a little puffed-up duck in a 500-buck tie.”
When the fateful email dropped, Woodford was in Hamburg, the home of Olympus’s European headquarters. It was through the success of Europe and the company’s highly competitive endoscope operations that Woodford the gifted salesman, and later Woodford the cost-cutting manager, would be lifted to the summit of the Japanese group.
Although he leaves little doubt of his drive as an executive, Woodford does not devote much of his book to his sometimes preternatural motivation to see the Olympus wrongdoing fully exposed and his tormentors brought to justice. A chapter on his childhood and early working life recalls learning the art of salesmanship by selling blackberries collected in used yoghurt pots to neighbours and of the cruelty of being mocked at school for having “Asian features” from his father’s side of the family. As well as a yearning to leave relative poverty behind, he says that “Liverpool was where I developed my insecurities.” His account leaves little doubt that many of these have survived into adulthood.
The July email was from a trusted friend Woodford does not identify. It revealed that an article had appeared in a Japanese business magazine, Facta, alleging massive financial impropriety at Olympus. Woodford was convinced he had to fly back to Japan immediately but travelled with the confidence of a loyal company man, assuming the article must be either malicious or sensationalist. According to his account, it marks Woodford’s last moment as a naïf.
On his return to Tokyo, the non-Japanese speaking Woodford was shown a translation of the full article. The two principal allegations were detailed and chilling. The first was that, between 2006 and 2008, Olympus had paid irrationally large sums of money, nearly $1bn in total, for three Japanese companies that fell spectacularly outside the sphere of its business. Thenceforth referred to by Woodford as the “Mickey Mouse companies,” the trio comprised a medical waste disposal company, a manufacturer of microwavable dishes and a mail-order cosmetics company.
The second part dealt with the $2bn purchase of a London-listed medical equipment group, Gyrus, in 2008. While the purchase itself might have made sense, the 58 per cent premium paid for the stock did not. Even stranger was the fact that, between 2008 and 2010, Olympus paid almost $700m to a mystery seller for a tranche of preferred shares in Gyrus.
This may all have come as a shock to Woodford, but it was by no means the first time Olympus’s financial behaviour had raised eyebrows. Even he acknowledges that something had not struck him as quite right about the Gyrus deal, which should have fallen squarely on his European management patch back in 2008, but was instead entirely undertaken by the head office in Tokyo. Analysts covering Olympus had never been happy with the premium paid for Gyrus or the three other mysterious acquisitions. Veterans suspected tobashi: the ruse employed by Japanese companies to conceal massive losses sustained in the aftermath of the bursting of the late-1980s bubble. For them, the Facta article was confirmation of suspicions.
“This had huge implications,” he recalls thinking. “Even if a small part of the article was true, heads would roll, and the company’s reputation would be irreparably damaged. And where, as president, did this leave me?”
Although Woodford will forever be feted as the whistle-blower who took on Japan, that, as he acknowledges, is only part of the story. By the time the email appeared in Woodford’s inbox, the whistle had already been blown. Facta’s story was not some tour-de-force of investigative journalism but a report based on the insider evidence of a man who later turned out to be an Olympus employee. This was the real whistle-blower. At least at first, Woodford was simply an assiduous president, new to the job and still oddly unfamiliar with the mores of corporate Japan, responding to a set of public allegations with more vigour, persistence and honesty than is normal for the head of a Japanese corporation.
For the foreign press, the whistle-blower epithet was useful shorthand to introduce Woodford as the battered hero of each new episode in the drama. For domestic Japanese media, casting Woodford as whistle-blower allowed them to disguise the fact that one of the greatest scoops of the 21st century had emerged in an obscure magazine and that the actual whistle-blower had trusted none of them with his information.
Soon after reading the Facta article, Woodford learned that Kikukawa had ordered staff not to show it to the gaijin president. In a magnificently tense scene, with panic rising on both sides, he confronted Kikukawa and demanded to know how much of the article was true. The answers were vague. Through his account, we have a flash of Woodford’s irritability. Mentally, he starts to define the crisis in cultural terms and through the vagaries of “the Japanese way.” Kikukawa attacks the tone of Japanese investigative journalism and says that companies need to be treated with more respect.
By the end of that day Woodford was exhausted by what lay before him, not as a whistle-blower, but as a responsible corporate officer. “I knew full well that I was the person with whom the buck stopped,” he writes.
Throughout the narrative, there are important issues on which Woodford chooses not to dwell for long. Prominent among them is the question of why he was made president of Olympus in the first place and what, precisely, Kikukawa and the board thought they were getting. Some have suggested that the board mistakenly chose a man they believed they could control, a man whose loyalty to Olympus would restrain him from doing its name any harm.
Certainly, Woodford had performed strongly as a manager in Europe, and, in late 2010, the company as a whole was in the middle of a dismal slide in operating income. Woodford was offered the job by Kikukawa, who told him: “I haven’t been able to change this company, but I believe you can.”
The few other Japanese companies who had taken the step of appointing non-Japanese presidents—Carlos Ghosn at Nissan, Howard Stringer at Sony, Stuart Chambers at Nippon Sheet Glass—had found their gaijin implants useful. In theory, the foreign presidents could get on with the grim and culturally awkward business of slashing costs and headcount, while the boards could shrug and blame the ruthless foreigner for all the nastiness.
Clearly Woodford believed he was up to the task. Seeing the promotion as a reward for loyalty in a culture where that was highly prized, he convinced his Spanish wife, Nuncy, that he should swap Southend for Tokyo and “change this company for the better. It’ll only take a few years, and I owe so many people that.”
It is one of many lines in the book that hint strongly at Woodford’s non-expertise in Japan. There was “a game being played,” he writes, “and nobody was informing me of the rules.” As Kikukawa and the board confront him first with stonewalling, then with dirty tricks, then with outright confrontation, Woodford keeps discovering a dark aspect of Japan of which he was either ignorant or had only an academic understanding. At one point, at the height of the scandal, he returned to the country for a showdown. His arrival coincided with the appearance of a viciously critical piece about him on the Jiji Press newswire. “So that was how it worked in Japan, one-sided stories based on ‘sources close to’,” he writes, appalled by a totally standard Japanese practice.
The book is compellingly paced and unsettling. But at times, the story of one of Japan’s most intriguing and sensational scandals almost feels written by a first-time tourist. For an executive who had spent three decades of his working life in the subsidiary of a Japanese corporation, it is surprising how often he is surprised by Japan.
By late September, still astonished that mainstream Japanese media had not picked-up the Facta story and that institutional investors were not raising hell, Woodford was on the path for which he would soon become known around the world.
He started writing formal letters to the Olympus board—there would be six in total—demanding clear explanations of what had happened and laying out his concerns. None were satisfactorily answered. To the fury of Kikukawa and others in Tokyo, Woodford engaged an accountancy firm to conduct an impartial investigation of what had been going on. Through the letters, he formally alerted Olympus’s existing auditors to the potential problems. The genie, he writes, was well and truly out: Kikukawa would be held to account after a 10-year reign in which he had seen himself as the “all controlling, all-powerful Emperor.”
“I must have turned into Kikukawa’s worst nightmare,” writes Woodford. “But he knew what he was taking on with me. He only had himself to blame. I’m organised, I’m structured, and I could defend myself.”
Even at this adrenal pitch, Woodford’s tone, his urgency and fears for his personal safety all surged after another Facta article on 20th September. This time, the focus was on the identity of the shareholders who had sold their bafflingly expensive stakes in the three unprofitable “Mickey Mouse” companies to Olympus. If the thread of ownership were followed, said Facta, the nature of the companies was uncertain.
It is a measure of his character that Woodford chose to stride deeper into this maelstrom. His demand was that he be given the CEO position held by Kikukawa and the executive power he felt was required to begin the “huge clean-up operation, the purging of all this wrongdoing.” There followed more showdowns in Tokyo, more occasions for Woodford to allude to Alice in Wonderland, but eventually his demands were met. On 30th September, he became chief executive, a position he would hold for just a fortnight.
He immediately flexed his new executive muscles, commissioning PwC to review the inexplicable payments of $687m in “fees” for advice on the Gyrus deal to a company in the Cayman islands called Axam. As a proportion of the deal, the sum represented the most ever paid as an advisory fee in the history of investment banking. The PWC report that came back eight days later described the deal as “questionable” and a “cause for concern.” It was all Woodford needed to pen his next letter to Kikukawa, this time demanding that he step down as chairman.
What followed a few days later was explosive: the moment when months of turmoil and mistrust finally erupted from inside the Olympus boardroom and onto the world stage. Even now, Woodford is unable to write about his final minutes as president and CEO of Olympus without rage. Summoned for a meeting at 9am on 14th October, he arrived clutching a statement to the board of directors that would not, in the event, be read out. It detailed his concerns with the massive $687m deal fees paid to Axam for Gyrus, and the $800m paid for the three meaningless companies.
At 9.07, Kikukawa “waddled in like a duck, wearing a shiny blue suit.” In Woodford’s ear was the voice of a translator, as the chairman changed the agenda from discussing concerns over mergers & acquisitions to “the dismissal of Mr Woodford as President, CEO and representative director.” Woodford waited for the room to stir. It did not.
“Oddly, I had an overwhelming desire to laugh. I was in a room full of people—of colleagues, some of whom I had known for over 30 years—who were now operating beyond all the recognisable codes of conduct, not just in Japan but anywhere in the business world,” Woodford writes, postulating that Kikukawa was not acting irrationally by sacking him, and was “scared of something far worse.” He does not elaborate on that.
Minutes later, the first foreign president and CEO of Olympus was handing his company mobile back to staff. Distressed, fearing for his safety, he found Tokyo instantly sinister. He headed home to pack, and then to the open spaces of Yoyogi Park. With Olympus furiously spinning the line that the man it had only just appointed CEO had been sacked because of his failure to understand Japanese business culture, Woodford was the real story to western journalists. He fled Japan, convinced that he was leaving enemy territory and terrified that the yakuza would exact a revenge for the uproar that had just been unleashed.
* * *
From that moment on, Woodford’s battle would remain in the public sphere. He refused almost no interview and those who followed the scandal will find the Woodford of Exposure very familiar. Kikukawa was forced to step down in late October but even then Olympus was clinging to the claim that the purchase of the Mickey Mouse companies had been legitimate. Woodford was convinced that the Olympus fraud would be investigated more thoroughly than previous Japanese accounting scandals. He also believed he had gained sufficient momentum among shareholders to stage a proxy fight for his re-instatement as CEO with a new board behind him. Those hopes would be dashed when, once again, he underestimated the passivity of Japanese institutions. The fight was abandoned in January 2012 when he realised that he was not just fighting with the board of Olympus, but with “the whole Japanese system.”
As for the fraud itself, Woodford’s tenacity would eventually be rewarded. Under the glare of proper investigation, it emerged that the dodgy deals had indeed been used as a way of hiding unrealised losses sustained when previous management of the company had taken crazy bets on derivatives and structured products during the bubble. For long-term Japan watchers, what Olympus had been trying to do in its aftermath was all too familiar—creating fake or madly inflated deals to “blow away” those unrealised losses and leave the consolidated accounts looking clean.
It is often forgotten how traumatic the bursting of the bubble was for Japan. The 20 years, the so-called “lost decades,” that have followed have been like an anguished Dr Jekyll attempting to repair the damage after a night of violent, catastrophic insanity in the persona of Mr Hyde. Olympus’s strategy was unambiguously criminal and foolhardy. But no country in the modern era—even America in 1929—has suffered in the same way as post-bubble Japan.
When Olympus, under pressure from shareholders, set up a “third party committee” investigation into the affair, Woodford was not alone in fearing the outcome would be timid. It was not. The 185-page report described the management of Olympus as “rotten to the core” and called on the company to “remove its malignant tumour.” Armed with that judgement from a former Supreme Court justice, Woodford sought damages from Olympus. He is thought to have settled for around £10m. Some 19 former and current members of Olympus senior management are being sued by the company itself.
In late September and at the start of their trial, Kikukawa and two other former Olympus executives, pleaded guilty to charges of falsifying accounts in an attempt to cover up to $1.7bn of losses. “The entire responsibility lies with me,” Kikukawa, who faces up to 10 years in prison, told the Tokyo district court.
In common with so many observers of the Olympus scandal, Woodford is unable to resist a final chapter that tackles the question of what the incident says about Japan. Like so many others, he is determined that the affair revealed something profound about a company and a country everyone thought they knew.
Despite having been one of only a tiny handful of foreigners to see corporate Japan from the captain’s deck, he is ill-equipped to make the big call. He is so eager to demonstrate that this was a “made in Japan” scandal that he does not spend time analysing whether it was worse or comparable with fraud elsewhere. Cultural explanations, remarked one analyst at the height of the scandal, are offered by people who haven’t done their homework.
Woodford is able to point to the manifold failures of Japanese institutions—particularly the mainstream media, the accountancy industry and the major pension funds—and repeat existing condemnation of their weaknesses. Japan’s unique system of cross-shareholdings (two companies holding each other’s shares) also comes in for stern criticism.
But Woodford and others make another leap from there and hint that there may be many more Olympus-type scandals lurking beneath the corporate faades of Japan. Beware these theories, says Nicholas Smith, a Japan strategist at the brokerage CLSA: “There is nothing exotic or uniquely Japanese about the Olympus tobashi affair. Window-dressing and fraud are as ubiquitous as the grass. The affair is interesting precisely because financial scandals are so rare in Japan. It does not reveal corporate Japan to be an accounting minefield.”
Although this analysis represents the most optimistic end of the spectrum, it is most likely closest to the truth. Many Japanese companies encountered similar problems with unrealised losses in the 1990s and many hoped that the problem could be hidden. As that became more difficult for some, tobashi methods were employed in varying scales and complexities. There was, effectively, a window for companies to come clean: many took it, some clearly did not. The scale of the Olympus fraud and the Heath Robinson-style mechanisms used to carry it out strongly suggest that it was both qualitatively and quantitatively exceptional. There may be a few more scandals to come, but not dozens.
In the final analysis, the Olympus scandal revealed much about the place Japan has allowed itself to become as it enters its third post-bubble decade. It shows what happens to a national psyche and a corporate culture that are only lightly held to account by the media. The 2011 earthquake which led to the Fukushima disaster has done something very similar—revealing regulatory and behavioural failures in and around Japan’s nuclear industry.
When the investigative commission on the Fukushima disaster published its initial findings earlier this year, it concluded that: “This was a disaster made in Japan. Its fundamental causes are to be found in the ingrained conventions of Japanese culture: our reflexive obedience, our reluctance to question authority; our devotion to sticking with the programme; our group-mentality; and our insularity.”
It is tempting to apply the same analysis to the Olympus scandal. But on close inspection, the Fukushima statement is a piece of deliberately deceptive self-flagellation. The cultural argument absolves the individual from responsibility.
Through the dysfunction of Japan’s fourth estate, the country has nurtured a belief, put into words by Kikukawa, that companies deserve respect. The real failure of the Japanese media, the accountants, the Tokyo Stock Exchange and investors is not that they missed the specific fraud at Olympus—it was, after-all, a very elaborate cover-up designed to fox precisely those parties. The failure is that a generation of Japanese managers has learned to live without a constant, gut-churning fear of any of those sentinels.
In his (or his publisher’s) eagerness to be remembered as the great whistle-blower, Woodford overlooks a serious weakness of Japan that could be very simply addressed: its lack of strong laws to protect whistle-blowers.
There is no doubt that Woodford believed he and his family were in serious danger. But halfway through the book, Woodford appears to lose interest in the suspected links to organised crime. He does his readers a favour. Olympus’s large scale fraud relied upon a complex series of actors operating in a realm of finance that was, by necessity, legally questionable. Given the pervasiveness of yakuza activities in Japan, it would not be surprising if the route Olympus took to conceal its losses crossed the path of organised crime. But that should not allow the Olympus debacle to be written as a crime driven by the yakuza, as Woodford tacitly admits.
Even if criminal gangs were never involved, or never planned to permanently silence the combative Brit, Woodford’s courage is not in doubt. But much greater risks were taken by the original source of the Facta story—the anonymous Olympus employee who decided that the fraud must be brought to light.
It is at the very end of the book that its most telling line emerges. Woodford, back in Japan, finally meets the true whistle-blower and finds someone impressively ordinary: “No superheroics. No airs and graces. Just another Olympus employee.” Woodford, shredded and exhausted by months of public battle, is confronted by what he must have looked like when he was first appointed president of Olympus. Now, he is the Southend Samurai, the maverick who took on Japan. A year earlier, he had been quite the opposite—Kikukawa’s protégé and a company man through and through.
“When you became president I really wanted to email you to tell you what was happening. But I didn’t know you weren’t one of them. I’m sorry,” said the whistle-blower.
