The Olympus Scandal: When a Foreign CEO Rebels

Speaking to CEOs, CFOs and other leaders of home-grown Asian corporate giants these days, one increasingly hears the same refrain. “We need to change to become globally competitive.” “We need to bring in new perspectives, new ways of doing things.” "We need a Westerner to conquer Western markets."

Japan’s Olympus, the US$11-billion-a-year maker of cameras and medical equipment, is no exception. Last October, when then-company president Tsuyoshi Kikukawa spoke to British-born Michael Woodford (both pictured, left), he made clear his belief that Olympus needed to change.
“I felt his strong determination for drastic change and for entrusting me with the task of realising the company’s vision in the new era,” Woodford was quoted in Olympus’s 2011 annual report.
On 1 April this year, Woodford, 51, became the company’s first ever foreign president and chief operating officer, replacing Kikukawa, who became chairman. An Olympus employee since 1981, Woodford was previously Executive Managing Director of Olympus Medical Systems Europa.
Six months later, Olympus, which was founded in 1919, also made him its CEO. But barely two weeks after that, on 14 October, the board suddenly ousted the newly minted chief executive.
The market was shocked because, in promoting Woodford to CEO, the same board said it was “extremely pleased with the progress made under Mr. Woodford’s leadership.” It added that his initiatives “not only already had a positive impact on the financial results, but also in creating an environment where change is not only accepted, but actively encouraged.”
You paid how much?
What happened? Is this another cautionary tale about the gap between East and West and how the brash management style of Western executives can damage Asian business cultures?
In fact it is turning out to be a saga of old-fashioned greed, fraud and possibly the Yakuza, Japan's feared criminal gangs. Woodford had spoken darkly about "forces behind" Olympus and has requested Scotland Yard in London for police protection.
Olympus, however, portrays the firing as a West vs. East clash of cultures. Woodford “was not able to understand that we needed to reflect the management style we have built up since the company was established 92 years ago, as well as Japanese culture,” said the 71-year-old Kikukawa, who  complained that the Englishman by-passed managers to issue direct orders to the rank and file.
But the market was not convinced. As of 21 October, Olympus’s stock price had shed 50% of its value, from 2,482 yen (US$32) before Woodford’s ouster to 1,231 yen (US$16). Investors have lost the equivalent of more than US$4 billion.
And Woodford, who remains a board director, is fighting back. The real reason for his sacking, he said, was that he questioned M&A deals that Olympus completed several years ago, particularly its 2008 acquisition of British medical equipment maker Gyrus.

Investors were aghast at Olympus's admission that it paid US$687 million to the financial advisor that worked on the Gyrus deal – that's equal to 31% of the US$2.2 billion purchase price. It is the largest M&A fee ever made, wire service Thomson Reuters estimates. The previous record was US$217 million in the far larger €70-billion takeover of Dutch bank ABN AMRO by RFS Holdings in 2007 – some 3% of the purchase price.

Olympus denies any wrongdoing. All M&A transactions had gone through the appropriate procedures, the company insists. In a 19 October statement, it pointed out that the board of corporate auditors had concluded that “no dishonesty or illegality is found in the transaction itself, nor any breach of obligation to good management or any systematic errors by the directors recognised.”
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