Professionalism/Michael Woodford and Olympus

The Olympus Scandal refers to a long period of accounting fraud directed by Olympus executives and exposed by its brief CEO Michael Woodford in Fall 2011. The Olympus board, led by Tsuyoshi Kikukawa, had nearly completed a two-decade scheme to hide up to $2 billion in losses following the crash of the Japanese stock market in the early 1990s. However, British businessman Michael Woodford blew the whistle on the cover-up weeks after his promotion to CEO. Six Olympus executives were sentenced to prison in the aftermath of the scandal, which some commentators have viewed as the beginning of a new era of openness in Japanese business culture. The case presents an excellent example of contrasting Japanese and Western business leadership styles and how professionalism may be defined differently across cultures.

Olympus Corporation logo

Timeline of the scandalEdit

Origins of the Tobashi schemeEdit

Founded in 1919, Olympus rose to international prominence during the Japanese electronics and tech boom of the 1980s as a leading producer of consumer cameras and medical optics [2]. This period saw strong growth for many Japanese hi-tech exporters, fueled by innovative products and a weak yen, which made Japanese goods cheaper than those from American and European competitors. The Plaza Accord in 1985 led to a stronger yen and contributed to the decline of the Japanese economy and eventually to a period of deflation that has hindered the Japanese economy ever since.

Facing a limited export market and grim financial outlook for the coming decade, many Japanese firms spent their substantial cash reserves to diversify in the late 1980s. Olympus invested $2 billion in smaller firms across a variety of industries[3], including forays into the emerging derivatives market[4]. When these investments failed, Olympus leadership distributed the losses through a complex series of shell companies and fictitious advisers in what is known as a "Tobashi scheme," named after the Japanese word for "fly away."[5]. Tobashi schemes work by deferring losses to purpose-made firms hiding in exotic places such as the Cayman Islands. Before annual balance sheets are published to investors, a company with embarrassing losses could sell their debts to a shell company, only to buy it back immediately following the release of year-end financials. In this way, significant debts may be deferred indefinitely, hidden from investors, while the firm quietly pays them back[6].

When Tsuyoshi Kikukawa was promoted to President and CEO of Olympus in 2001, he inherited the Tobashi scheme in a tightening regulatory environment. Such schemes were not completely illegal in Japan until 2001, following the collapse of Enron in the United States and Yamaichi Securities in Japan. Before then, Tobashi schemes were common practice for Japanese businesses caught in the Japanese asset price bubble of the 1990s [7]. Despite closing loopholes and intensifying scrutiny from Japanese authorities, Kikukawa led Olympus to the closing stages of a twenty-year Tobashi scheme.

Michael Woodford blows the whistleEdit

In the spring of 2011, Michael Woodford was notified of his future promotion from COO of Olympus' European business to President and CEO of the global firm. Woodford, British-born of Tamil ancestry, had joined a small British optics firm directly out of college in 1980, a firm soon acquired by Olympus during the buy-up period of the late 1980s[8]. He ascended the corporate ladder until eventually becoming one of only three foreign CEOs in Japan on September 30, 2011[9]. A relatively anonymous foreign executive, some commentators at the time believed the appointment had been hand-picked by Kikukawa to be a pliant figurehead happy to leave real authority in the hands of the existing board[10][11].

Upon promotion, Woodford began to grow suspicious of the other board members after noticing a handful of large, quietly-executed deals to banks in the Cayman Islands, particularly a transfer to an "adviser" for around $700 million[12]. These findings corroborated the allegations of fraud at Olympus published in an issue of an obscure Japanese financial magazine, FACTA, in the summer of 2011[13]. Woodford immediately suspected that the businessmen were stealing these enormous sums of money, which, were actually the final installments of the deferred loans of the Tobashi scheme initiated decades before. Rather than confess to Woodford the extent of the cover-up, board members dismissed the CEO's questions regarding the money. When Woodford refused to ignore the issue, he was unanimously fired on October 14, 2011, only two weeks after taking the job[14]. Kikukawa resumed duties as interim CEO until a new man, Shuichi Takayama, was chosen one week later. Woodford fled to England, concerned for his safety and that of his family.


The rapid hiring and firing of CEOs sent Olympus into the media spotlight and its stock price tumbling[15]. In November, Woodford gave several interviews describing his concerns about Olympus' books, and the new president was forced to hold a series of embarrassing press conferences admitting to deliberate faulty accounting[16]. Michael Woodford returned to Tokyo that month to assist with the investigation and lobby for legal control of the company, now lacking solid leadership. In Spring 2012, Kikukawa and five other board members were sentenced to ten years in prison for fraud, and Michael Woodford was awarded a £10 million settlement in a wrongful dismissal suit[17][18].

Culture ClashEdit

"[Woodford] was unable to understand that we need to reflect a management style we have built up in our 92 years as a company, as well as Japanese culture...[he] ignored our organizational structure and made decisions entirely on his own judgement"[19]

—Tsuyoshi Kikukawa

The Olympus scandal illustrates the differences between Western and Japanese culture. Both Woodford and the Olympus board felt they did what was right and in accordance with their cultures. Woodford's inability to act in accordance with standards of Japanese business may have justified his dismissal. Japanese business culture is founded on the following principles:


When a Japanese business decision is made, all team members are expected to support the decision and preserve group harmony. Those who oppose the will of the crowd are seen as immature. This unity promotes efficient enterprise operations and plan execution. Westerners see the tendency to conform as weakness and may be vulnerable to groupthink. They value the individual whereas the Japanese hold the group in higher regard [20]

The Olympus board dismissed Woodford partially because he opposed the will of the group. The board unanimously supported finishing the Tobashi scheme while Woodford was the lone opponent. Kikukawa and the board saw Woodford as unprofessional.


Hierarchy is rooted in Japanese culture through Confucianism. In the workplace, superiors are expected to care for their subordinates even in their personal lives. This creates a solid trust between a boss and his or her employees. In exchange, the subordinate is expected to follow the superior's judgment without question. This tendency to conform to the superior's decisions is in line with the other tenets of Japanese business culture [21].

Though Kikukawa retired as CEO, he still believed himself superior to Woodford. As a result, the board perceived Woodford's opposition as insubordinanation. In addition, as Woodford's longtime boss and friend, Kikukawa held a certain expectation of trust that Woodford would not contradict him. Kikukawa felt Woodford's opposition was a violation of the intrinsic trust between manager and employee.


Hurst III and Cameron (1990) contend that Bushido, the strict code of ethics stemming from the days of the samurai, is still engrained in Japanese culture today [22]. The unflinching loyalty of a samurai warrior to his lord parallels that of an ideal Japanese employee to his company and manager. According to Gundling (1999), managers often offer support in the personal lives of their employees[23]. Thus personal and professional relationships sometimes intersect, establishing a strong bond between the two parties. The Japanese seek to protect their own, especially with regard to honor.

Though Kikukawa did not start the Tobashi scheme at Olympus, he sought to protect the honor of those who did. Kikukawa likely had a strong relationship with many of those former decision makers. The board prioritized the honor of their previous leaders over their own quest for legitimacy.

Western businesses often use an iterative decision process that resolves issues after the decision has been made; Japanese businesses often deliberate thoroughly before making a decision, and proceed harmoniously with the result[1].

Decision MakingEdit

In western culture, businessmen often use their expertise to make a decision and then work out issues as they arise in execution. However, in Japanese culture businessmen focus on figuring out all details of a plan before making a decision, including factoring in input from individuals. This results in a smooth execution phase. Anyone choosing to go against the decision in its execution stage is perceived as ridiculous [24].

In the Olympus case, the board had already chosen a decision twenty years prior to Woodford becoming CEO. Woodford came on board during the execution stage, which as illustrated by the image to the right, is normally smooth. When he began speaking against the Tobashi scheme, he was seen as breaking the flow of execution and creating unnecessary chaos. Woodford unknowingly sought to apply the Western decision making process to a Japanese scenario.

Professionalism Across CulturesEdit

Kikukawa's western opponents say he focused too heavily on short-term goals. He took substantial steps to hide the losses from the Tobashi scandal to prevent damage to Olympus's stock. For example, to appease shareholders with external validation of Olympus's faulty books, Kikukawa fired KPMG Azsa to replace them with the more lenient auditors Ernst and Young [25]. Kikukawa could have acted with greater integrity as Francis Oldham Kelsey had with thalidomide.

However, this conclusion only takes into account the western perspective. From the Japanese perspective, perhaps Kikukawa exhibited an integrity similar to Frances Oldham Kelsey, but with different values, namely loyalty to relationships and "family." The stock price, already at a low of just over 1000 yen during the 1990s, would likely have lost even more value if the losses were not hidden, risking the company's demise. Had Tobashi schemes not become illegal in 2008, Kikukawa would have likely succeeded in erasing the disparity between the actual debt and published debt. Kikukawa, who had merely inherited the scheme, did what he felt was best in order to preserve the honor, reputation, and relationships of his company and the executive board before him. In describing Kikukawa's philosophy, Woodford writes, "His message was clear to me: Olympus was a family, and families require loyalty” [26].

To fairly judge Olympus, one must consider both cultural perspectives. To both sides, Woodford is a clear example of a professional with strong integrity. Is Kikukawa? Though he was sentenced for fraud, he upheld the standards so heavily engrained in his native culture to the best of his ability.

See alsoEdit

  • Enron collapsed due to a similar accounting scandal.


  1. ^ Olympus Global (2013). Vol. 1: Realising the dream of making microscopes.
  2. ^ Tabuchi, H. (2011). Corporate Japan Rocked by Scandal at Olympus." The New York Times, November 9, 2011.
  3. ^ "Michael Woodford, ex-CEO of Olympus: 'Let me tell the true story behind my dismissal'." Nikkei Business Online, November 1, 2011.
  4. ^ Soble, J. (2011). Olympus used takeover fees to hide losses. Financial Times, November 8, 2011.
  5. ^ The Audit School (2013). Tobashi.
  6. ^ Soble, J. (2011). Olympus Q&A. Financial Times, November 10, 2011. (paywall).
  7. ^ Neate, R. (2012). The man who blew whistle on £1bn scandal. The Guardian, November 12, 2012.
  8. ^ Ridley, K. and Smith, A. (2011). Special report: In Japan, a foreigner speaks out.
  9. ^ Burrough, B. (2012). The CEO who shocked Japan, Inc. The New York Times, December 1, 2012.
  10. ^ Ridley, K. (2012). Fired Olympus executive starts legal challenge. Reuters, March 1, 2012.
  11. ^ The Economist (2012). Paying a price for doing what's right: What really happened at Japan's premier camera-maker.
  12. ^ Nippon News (2012). Olympus press conference with president Shuichi Takayama.
  13. ^ Goodway, N. (2012). Whistle-blower Woodford settles for £10m after his Olympus sacking. The Independent, June 9, 2012.
  14. ^ Carozza, D. (2012, March). The real cost of 'choosing truth over self'. Fraud magazine, Retrieved from
  15. ^ Gundling, E., Sasaki, R., Dickey, D., & Aoki, M. (1999). Communicating with japanese in business. JETRO.
  16. ^ Hurst III, G. (1990). Death, honor, and loyalty: The bushido ideal. Philosophy East & West, 40(4), 511.
  17. ^ Nakamoto, M. (2011). Olympus disclosure shakes auditors’ reputations. Financial Times, November 10, 2011.,Authorised=false.html?
  18. ^ Burrough, B. (2012). The C.E.O. Who Shocked Japan Inc. New York Times, December 1, 2012.