What Michael Woodford Saw at Olympus
Michael Woodford, English born, started as a salesman at the iconic Japanese optical equipment maker Olympus, and worked his way up the company ranks through perseverance and good business to last year become the first non-Japanese president and CEO of the conglomerate. But his Horatio Alger-like rise was cut short.
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Within months after rising to the top, he was alerted to an article alleging fraud at Olympus that had appeared in a Japanese newsmagazine called Facta. The magazine alleged that Olympus, which reported ¥848.5 billion in sales for its 2012 fiscal year (or about $10.7 billion) had spent close to a billion dollars for three companies that had a fraction of their purchased value and that accounts had been massively falsified. As he began to dig deeper, he uncovered a massive accounting fraud of close to $2 billion. When he demanded the former management resign and take responsibility he himself was ousted. Instead of retreating to the Bahamas on a golden parachute, he blew the whistle.
RELATED: Trouble Mounts at Olympus
So far as authorities unravel the financial cover-up seven people have been arrested in Japan last Febraury, including Olympus' chairman until the scandal was revealed Tsuyoshi Kikukawa. And this morning the F.B.I. made the first arrest outside Japan, taking a Singaporean banker into custody in Los Angeles. The U.S. Attorney in Manhattan, Preet Bharara, alleged in a release that Chan Ming Fon, who is a Taiwanese citizen, was paid $10 million "to play an international shell game with hundreds of millions of dollars of assets in order to allow Olympus to keep a massive accounting fraud going for years, duping its auditors and its shareholders."
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Reached for comment today, Woodford said, "It would be inappropriate for me to comment at this time" on the arrest as the investigation continues. But recently he spoke to The Atlantic Wire about his story of his fight to expose corruption and corporate malfeasance at his company is detailed in his book, Exposure: Inside the Olympus Scandal: How I Went from CEO to Whistleblower that was published in the United States last month with an afterword that I wrote and I was later compensated with a trip to a freezing cold Zen temple on a peninsula in Japan in lieu of a paycheck.
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While the Japanese media first ignored Woodford's claims, his dogged persistence and a wealth of evidence resulted in vindication and the criminal prosecution of those who tried to silence him. I consider Woodford a personal friend and the hero of this story. But much to my surprise, he doesn’t see himself as the hero in this story. Those honors, he insists, belongs to someone else.
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Jake Adelstein: When did you first realize that something was amiss on Mount Olympus, so to speak?
Michael Woodford: It was the Facta article, which I first thought was rubbish. My friend who brought it up, said on a Sunday, "Michael, let’s go at a hot spring resort and we can talk about it then." So I met him at Tokyo station, we got in the Shinkansen to get to our destination. I got on the train, even now, I always love the way things are done in Japan: the children playing very quietly, the lady with the trolley serving the tea politely, the clean train, and I was looking forward to going to the hot spring. So, the train starts its journey, my friend who also happens to be a director of a major Nikkei listed company gets out the Facta magazine and it is the back page headline, front line in the west. With a lot of detail, schematics of how the acquisitions were made, a picture of Kikukawa-san (the former CEO) looking like the devil himself on this magazine. And he started to translate and I remember, in the distance I could see Mount Fuji, symbol and icon of Japan, but my mood started to go down. And at the end of the translation I felt very black, very depressed. It was depressing because the article was substantiated, well-researched, and it was problematic for me.
There were two basic allegations. The first, Olympus had paid at current exchange rates, a billion dollars — one billion US dollars — for three companies: a company making face cream for mail order sales — face cream! — another making microwave plates, and the third, a garbage recycling company. Now, Japanese companies, they like this expression “new business opportunities,” “business expansion,” and they buy acquisitions which don’t really fit with their core. But what was alarming was that these three companies for which we had paid a billion for, basically had no turn over. A billion dollars for three companies with no turn over. Clearly something was amiss.
You often refer to them as “Mickey Mouse” companies.
Well, I mean no offense to Disney but they were Mickey Mouse companies—comical, farcical. And certainly not worth the incredible amounts paid for them.
And what happened when you brought this up to the management?
I got back to Shinjuku [the Tokyo district where Olympus is headquartered] and again, I had anticipation, what’s in the Nikkei? What’s in the Japan Times? Surely, the mainline media, NHK or others, would pick up the Facta article, surely it was going to be the front page news. But there was nothing in the newspaper. And in the office, everything was normal. In the afternoon, I can’t stand it anymore, so I called to my office, the president’s office, two of my Olympus colleagues, junior colleagues, but people I trust. I showed them the Facta magazine, and asked, “Do you know about this article?” And both of them looking uncomfortable, said, “Yes, we do, Michael. We know, but Mr. Kikukawa [the chairman and previous CEO] has told all the staff on the executive floor not to discuss it with you. Not to raise it with you.”
I was worried before, but now I am in the situation where the chairman of the company is telling my own staff not to tell me about a publication in Japan, which is making the most serious allegations. Why would he tell my own staff not to discuss it with me? So, I was really worried then.
And when did you become more worried?
Facta's next article was more detailed about what had taken place, but also alleged that Olympus had in some way links with J Bridge [a shareholder in a special purpose company which Olympus used to invest in the three companies and had been listed as a yakuza front operation by the Financial Services Agency] that there is association here with anti-social forces, which is an euphemism for “organized crime,” racketeering, the Yakuza. And I thought this is a white-collar crime, now Facta, and everything Facta had said seemed to be true, was saying that Olympus was associating with anti-social forces. There has never been any conclusive evidence to prove this was the case however at the time I was frightened. I’m from Liverpool but I’m not a fool. So, that was enough. And following that I came back to London and wrote my first letter to Mr. Mori, who was the chief compliance officer of the corporation. It’s a black comedy. I copied the whole board, and the first letter back said, “Don’t worry Michael, this was all looked at in 2009 by an independent panel.” Well, that panel was basically a small-time lawyer, and small-time accountant. Ridiculous, I pushed and pushed. And as you may know, eventually, I started copying the company’s auditors, Ernst & Young.
What really happened at Olympus? What were the so-called investment losses that had be covered up with massive accounting fraud?
The fact is that we may never really fully know. I’ve always said we should follow the money and maybe that is one reason why some were so anxious that I was not reinstated as a board member. We don’t know the nature and size of what the original losses were, and we don’t know the detail of all the money, which has been received by the counterparties to facilitate the tobashi (fraudulent accounting). We don’t know who all the counterparties were. I was told that I was not wanted back by many people, because I would have brought in forensic accountants to find out where every single yen went and how it was spent.
Can you comment on your talks with the FBI about this case?
The FBI and Federal prosecutors interviewed me on two occasions. And on the second meeting there were also observers from the SESC. I can say that on the record. Twice I was interviewed in New York at their Federal Plaza headquarters. Both meetings went on to several hours. But I was cautioned not to discuss what was covered in those meetings.
At one point, in the investigation, Jiji Press wrote an incredible article that you had essentially blackmailed the Olympus management into making you CEO by promising to hush up the accounting fraud if promoted. How did you feel when you found out?
Jiji Press had obviously been briefed, been told what to write. The then-Olympus management were clearly attempting to undermine me. If they (Jiji Press) had spoken to me, they never would have published. They could have published the story but of course with my side of it, and they would have had to say who were making these allegations, to make them come out and say it publicly. Of course, they would never do that. That was disturbing. But it was clear by my actions in particular calling in PricewaterhouseCoopers to report and copying my letters to the senior management team of the worldwide partnership of Ernst & Young that I had never tried to cover up anything or offered to do so. It was shoddy journalism. The so-called unnamed sources at Olympus had clearly lied. Jiji had without proper scrutiny and challenge simply reported those lies. After expressing outrage publicly and through my lawyers within a few hours Jiji withdrew the report and subsequently apologized in writing.
You write in the book, that the problems at Olympus were actually exposed thanks to a whistleblower that was inside the company. You have called him or her, the real hero. You eventually met that person. What was that experience like?
I was very touched and very impressed. At one point they had written me during the middle of the trouble to let me know they supported me and they were worried about retaliation from gangsters. I felt very humble. Because this person’s married partner still doesn’t know the person they share their life with is the Olympus internal whistleblower and the emotional strain and pressure for that person must have been immense. This was someone really at risk.
I was the president of the company, so people would listen to me. I had a foreign passport, and I had the ability to articulate outside of Japan, to mobilize the international financial community and law enforcement and regulatory parties around the world. That person didn’t. And all they felt was this disgust at the way the senior officers have been acting, the way Japan had reacted to it. And this person wanted to apologize for not coming to me directly and letting me know. And they made the exact right decision not to come to me — and the person was right in presuming that I could well be one of the people involved in the cover-up. Any reasonable person would conclude that I was in on the deal—otherwise I wouldn’t be made president, right? But that individual did the right thing. Because by going to the media, by talking to Facta, they got the story out. There are very good decent people in that company and in Japanese society. They do what they can. That person is the hero of the Olympus scandal story.
