Exposure: Inside the Olympus Scandal

“Come on, […] the company has paid nearly three-quarters of a billion dollars to unknown parties in the Cayman Islands, and for what?”  

This is not the line from another “The Firm”-like Hollywood movie but how former Olympus president and CEO Michael Woodford summed up the curious predicament he found himself in.  

Alerted by an article in a non-mainstream Japanese magazine Facta, he came to realise that his own firm had made some bizarre business decisions in the past.  

The inexplicable transactions between 2006 and 2008 included the purchase of three companies for a total value of $800 million.  

Humalabo, a face-cream maker, News Chef, a microwave-plate manufacturer and Altis, a medical-waste recycler, were not only completely unrelated to Olympus’ typical business lines, cameras and optical medical equipment, they also never turned a profit. In addition to the dubious strategic fit, the purchasing price appeared way over the top – a fact that was confirmed by the immediate write-down to 25 per cent of their value on the books of the Nikkei-listed company.  

Curiously the sellers of the companies included two special purpose companies Neo Strategic Ventures and Dynamic Dragons 11 in the Cayman Islands which, Facta claimed, had links to “anti-social elements”, code for Japan’s mafia the Jakuza. 

In addition to these three “Mickey Mouse” companies Olympus had bought, it had also acquired British medical technology company Gyrus for a seemingly high $2 billion-plus. More surprising than the price, however, were consultant fees and shares in the company worth $687 million, which were paid to a Cayman Islands-based company named Axam for financial advice relating to the purchase. Axam and US-partner company Axes were run by Hajime ‘Jim’ Sagawa, a former Japanese investment banker who lived in the United States and had also spent some time prior to 2007 in the Cayman Islands in a condo in Snooze Lane on Seven Mile Beach. 

Sometime after the payment of the commission Axam Investments was struck off the Cayman Islands company register in June 2010 for non-payment of licence fees.  

When Woodford confronted the chairman of Olympus Tsuyoshi Kikukawa, who should have known about the transactions, as well as the Olympus board with his findings, he was stonewalled.  

Woodford decided to commission PricewaterhouseCoopers in London to review the fee payments to Axam. PwC was unable to confirm improper conduct, but given the sums of money involved and some of the unusual decisions that have been made could not rule it out either.  

Despite this overwhelming evidence of potential wrongdoing Woodford did not receive the support from the Olympus board and its chairman and faced mounting pressure to drop his investigation.  

In ‘Exposure: Inside the Olympus scandal’ Woodford delivers an interesting first person account retracing how he went from CEO to whistleblower, including a detailed explanation of his thinking, his motivations and the emotions he went through.  

The book contains some fascinating observations of the boardroom culture at Japanese blue chip companies and Woodford is careful throughout not to mix his scathing observations of the wrongdoing at Olympus with a general judgment of Japanese culture.  

Yet despite having worked at Olympus for more than 30 years, Woodford still gives the impression of an outsider looking in. Everything Woodford did was correct, but while his actions perhaps deserve admiration, there is an element that prevents the reader from completely relating to him as a person. 

Accurate or not, Woodford cannot resist some cheap shots, and parts of his observations appear too sanitised and controlled to be entirely genuine. Still ‘Exposure’ is strong on giving an insight into the emotional turmoil of a whistleblower, powered forward by the thrilling story of corporate fraud.  

Quite naturally it remains a one-side account which leaves the reader wanting to know more about the perpetrators of the fraud. Most frustratingly though, one wonders why Woodford never once explores whether he was just a pawn in the schemes of the Olympus chairman. After all he was not only a rarity as a foreigner running a Japanese company, but also someone who has a quite unusual curriculum vitae and most importantly who does not speak Japanese.