Woodford's Discovery He first learned of the financial scandal facing Olympus from the Japanese financial magazine, Facta only three months into becoming President. While at a meeting in Hamburg, Germany in July 2011, he received an email from a Japanese friend directing his attention to the original article about the situation. Woodford explained that "Basically, this article was reporting that Olympus had been doing some very strange and bizarre things in relation to its M&A activity going back many years, and the amounts of money were huge,"10 said Woodford. "Olympus was a very conservative company, and I just couldn't believe it."11 "At the time, I wasn't sure whether they were credible- whether this was some sort of tabloid press-and I was returning to Japan the following week and I knew I would have an opportunity to find out what was going on."12 When Woodford returned to Japan the next week, on the last Friday in July 2011, for the monthly board meeting, he prepared himself to find a tense situation at the Olympus headquarters, but this was not the case at all. "I thought I would walk into the boardroom and there would be this atmosphere of tension with all the reports surfacing,"13 said Woodford. "It would be crackling. Everyone would be apologizing and desperate to tell me what this article was about. You can imagine a large American or European corporation, if something like the Facta article had been published. I went to the meeting, and it wasn't like that. It was mundane and ordinary. No-one mentioned anything. They just carried on as normal, looking at the monthly figures,"14 he recounted. "I thought, gosh, something's wrong. I must have the wrong end of the stick. The magazine's revelations can't be a problem. And at the meeting everyone was charming as ever to me and delightful. I didn't mention the article. I needed to understand what it was about."15 That weekend Woodford met with his friend, a director of another Nikkei listed company, and he translated the article, page by page. Woodford reflected, "It was clear that the article was well substantiated, it was credible, it was specific, but I still found it hard to believe."16 It revealed that Olympus had acquired three companies, with only nominal returns, for about $1 billion at current exchange rates. The three companies were a mail order face cream company, a company that made plastic plates for microwaves, and a recycling company. Olympus had also paid in 2010 nearly $700 million in transaction fees to Axam and Axes, relating to the 2008, $2 billion acquisition of Gyrus, a UK health care company, which had only earned about $20 million in post profits annually - a multiple of a hundred. When Woodford went into the office on the following Monday morning, August 1, 2011, he heard nothing from either Chairman Kikukawa or Vice President Hisashi Mori about the Facta article. Feeling frustrated and confused about this, he asked two of his colleagues whom he trusted if they had heard of the article. They had, but Kikukawa had advised them not to discuss it with Woodford. "Alarm hells started ringing. why would the Chairman he telling people not to discuss an issue.

Understanding Business
12th Edition
ISBN:9781259929434
Author:William Nickels
Publisher:William Nickels
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
Section: Chapter Questions
Problem 1CE
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The following day Woodford called a meeting with Kikukawa and Mori, and they met over lunch
to discuss Woodford's concerns. On his arrival Woodford was served a tuna sandwich, while
Kikukawa and Mori were served a huge platter of sushi. “A game was being played,” said
Woodford, "that was my position in things, and the sushi was a demonstration of their preeminence.
But I wasn't hungry. I got out the Facta magazine" and said, “Have you seen this? Why haven't I been
told?" Kikukawa replied, “Michael, I told the staff not to tell you because you're the president. You're
too busy to worry about these things." Woodford replied, “I'm the president, that's right, and I sign
the company's accounts and letter of representation with the auditors, Ernst and Young.
"18 Woodford
then asked Kikukawa if the article was true, and the chairman replied, “Some of it,” which surprised
Woodford. Kikukawa was evasive, clearly very uncomfortable.
Feeling that he would not get much more information out of Kikukawa, whom he considered
egotistical and delusional, he met with Mori privately, asking him, "Mr. Mori, why did you buy those
three companies? How did we price them? Why were we buying a face cream company, a company
that makes plastic plates for microwaves, and a recycling company? These were not publicly traded
companies, so where were the valuations? How did we value them?” Mori did not have a response,
and then Woodford inquired about the acquisition of Gyrus and the nearly $700 million in fees paid
to financial advisers two years after the acquisition. Mori responded that it was for “buying up A
preference shares." Woodford said, “It didn't make sense because we had bought the company
outright at $2 billion, an extremely high multiple."¹⁹9 Again, Mori did not have an answer, “He just
stopped talking, and I had never experienced that before but it was utterly disorienting. If you can
think about the context of this conversation, this was the President of the company speaking to the
Vice President and asking very reasonable and basic questions about two transactions which
accounted for over $1.5 billion-four or so years of profits for the entire corporation. It seemed
completely inexplicable, ludicrous." Woodford explained. Woodford became impatient about the
total absence of a response to his legitimate questions, “I said to him, 'Mr. Mori, who do you work
for?' I anticipated he would say, I work for Olympus,' or 'I report to you, Michael.' He said to me,
and I'll never forget his answer, 'Michael, I work for Mr. Kikukawa. I'm loyal to Mr. Kikukawa.' I
didn't know what to say, so I just went quiet and got profoundly depressed. I knew then that there
was something sinister, something seriously wrong, at the top of this corporation of which I was
president, and my instinct was just to get out of there."20 "The logical part of my mind told me that it
would only be a matter of time until the mainline media in Japan picked up on the Facta revelations -
surely a mainline media outlet would get ahold of the story and try to bring accountability and
transparency to exactly what was going on."2¹ However, this never happened.
Woodford Reveals the Scandal and Flees Tokyo
While on holiday with his family in Majorca in the middle of August, Woodford became so
prooccupied with the situation that he could not think of anything else. “I woke up every night
tv♫ I A
3
AUG
11
X
Find text or tools QA
W
P
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O
&
10
DOCX
Sign in
99
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Transcribed Image Text:All tools Edit Convert l e A Assignment_OLYMPU... 100 kalollabolalal Sign X + Create The following day Woodford called a meeting with Kikukawa and Mori, and they met over lunch to discuss Woodford's concerns. On his arrival Woodford was served a tuna sandwich, while Kikukawa and Mori were served a huge platter of sushi. “A game was being played,” said Woodford, "that was my position in things, and the sushi was a demonstration of their preeminence. But I wasn't hungry. I got out the Facta magazine" and said, “Have you seen this? Why haven't I been told?" Kikukawa replied, “Michael, I told the staff not to tell you because you're the president. You're too busy to worry about these things." Woodford replied, “I'm the president, that's right, and I sign the company's accounts and letter of representation with the auditors, Ernst and Young. "18 Woodford then asked Kikukawa if the article was true, and the chairman replied, “Some of it,” which surprised Woodford. Kikukawa was evasive, clearly very uncomfortable. Feeling that he would not get much more information out of Kikukawa, whom he considered egotistical and delusional, he met with Mori privately, asking him, "Mr. Mori, why did you buy those three companies? How did we price them? Why were we buying a face cream company, a company that makes plastic plates for microwaves, and a recycling company? These were not publicly traded companies, so where were the valuations? How did we value them?” Mori did not have a response, and then Woodford inquired about the acquisition of Gyrus and the nearly $700 million in fees paid to financial advisers two years after the acquisition. Mori responded that it was for “buying up A preference shares." Woodford said, “It didn't make sense because we had bought the company outright at $2 billion, an extremely high multiple."¹⁹9 Again, Mori did not have an answer, “He just stopped talking, and I had never experienced that before but it was utterly disorienting. If you can think about the context of this conversation, this was the President of the company speaking to the Vice President and asking very reasonable and basic questions about two transactions which accounted for over $1.5 billion-four or so years of profits for the entire corporation. It seemed completely inexplicable, ludicrous." Woodford explained. Woodford became impatient about the total absence of a response to his legitimate questions, “I said to him, 'Mr. Mori, who do you work for?' I anticipated he would say, I work for Olympus,' or 'I report to you, Michael.' He said to me, and I'll never forget his answer, 'Michael, I work for Mr. Kikukawa. I'm loyal to Mr. Kikukawa.' I didn't know what to say, so I just went quiet and got profoundly depressed. I knew then that there was something sinister, something seriously wrong, at the top of this corporation of which I was president, and my instinct was just to get out of there."20 "The logical part of my mind told me that it would only be a matter of time until the mainline media in Japan picked up on the Facta revelations - surely a mainline media outlet would get ahold of the story and try to bring accountability and transparency to exactly what was going on."2¹ However, this never happened. Woodford Reveals the Scandal and Flees Tokyo While on holiday with his family in Majorca in the middle of August, Woodford became so prooccupied with the situation that he could not think of anything else. “I woke up every night tv♫ I A 3 AUG 11 X Find text or tools QA W P O O & 10 DOCX Sign in 99 4 24 < с 1:1 Q
All tools
l
e
A
Assignment OLYMPU... X
Edit Convert Sign
…
kalollabolalal
+ Create
Woodford's Discovery
He first learned of the financial scandal facing Olympus from the Japanese financial magazine,
Facta only three months into becoming President. While at a meeting in Hamburg, Germany in July
2011, he received an email from a Japanese friend directing his attention to the original article about
the situation. Woodford explained that “Basically, this article was reporting that Olympus had been
doing some very strange and bizarre things in relation to its M&A activity going back many years,
and the amounts of money were huge,"¹0 said Woodford. "Olympus was a very conservative
company, and I just couldn't believe it."¹¹ “At the time, I wasn't sure whether they were credible —
whether this was some sort of tabloid press - and I was returning to Japan the following week and I
knew I would have an opportunity to find out what was going on."
"12
When Woodford returned to Japan the next week, on the last Friday in July 2011, for the monthly
board meeting, he prepared himself to find a tense situation at the Olympus headquarters, but this
was not the case at all. “I thought I would walk into the boardroom and there would be this
atmosphere of tension with all the reports surfacing,"¹³ said Woodford. “It would be crackling.
Everyone would be apologizing and desperate to tell me what this article was about. You can
imagine a large American or European corporation, if something like the Facta article had been
published. I went to the meeting, and it wasn't like that. It was mundane and ordinary. No-one
mentioned anything. They just carried on as normal, looking at the monthly figures,”
"14 he recounted.
"I thought, gosh, something's wrong. I must have the wrong end of the stick. The magazine's
revelations can't be a problem. And at the meeting everyone was charming as ever to me and
delightful. I didn't mention the article. I needed to understand what it was about."15
That weekend Woodford met with his friend, a director of another Nikkei listed company, and he
translated the article, page by page. Woodford reflected, “It was clear that the article was well
substantiated, it was credible, it was specific, but I still found it hard to believe."¹6 It revealed that
Olympus had acquired three companies, with only nominal returns, for about $1 billion at current
exchange rates. The three companies were a mail order face cream company, a company that made
plastic plates for microwaves, and a recycling company. Olympus had also paid in 2010 nearly $700
million in transaction fees to Axam and Axes, relating to the 2008, $2 billion acquisition of Gyrus, a
UK health care company, which had only earned about $20 million in post profits annually - a
multiple of a hundred.
When Woodford went into the office on the following Monday morning, August 1, 2011, he heard
nothing from either Chairman Kikukawa or Vice President Hisashi Mori about the Facta article.
Feeling frustrated and confused about this, he asked two of his colleagues whom he trusted if they
had heard of the article. They had, but Kikukawa had advised them not to discuss it with Woodford.
"Alarm bells started ringing-why would the Chairman be telling people not to discuss an issue –
particularly such a significant issue with me? I was the president of the company: "explained
tv♫ I A
3
Find text or tools QA
AUG
11
X
W
P
о
&
10
DOCX
Sign in
ប
99
3
24
<
с
1:1
Q
Transcribed Image Text:All tools l e A Assignment OLYMPU... X Edit Convert Sign … kalollabolalal + Create Woodford's Discovery He first learned of the financial scandal facing Olympus from the Japanese financial magazine, Facta only three months into becoming President. While at a meeting in Hamburg, Germany in July 2011, he received an email from a Japanese friend directing his attention to the original article about the situation. Woodford explained that “Basically, this article was reporting that Olympus had been doing some very strange and bizarre things in relation to its M&A activity going back many years, and the amounts of money were huge,"¹0 said Woodford. "Olympus was a very conservative company, and I just couldn't believe it."¹¹ “At the time, I wasn't sure whether they were credible — whether this was some sort of tabloid press - and I was returning to Japan the following week and I knew I would have an opportunity to find out what was going on." "12 When Woodford returned to Japan the next week, on the last Friday in July 2011, for the monthly board meeting, he prepared himself to find a tense situation at the Olympus headquarters, but this was not the case at all. “I thought I would walk into the boardroom and there would be this atmosphere of tension with all the reports surfacing,"¹³ said Woodford. “It would be crackling. Everyone would be apologizing and desperate to tell me what this article was about. You can imagine a large American or European corporation, if something like the Facta article had been published. I went to the meeting, and it wasn't like that. It was mundane and ordinary. No-one mentioned anything. They just carried on as normal, looking at the monthly figures,” "14 he recounted. "I thought, gosh, something's wrong. I must have the wrong end of the stick. The magazine's revelations can't be a problem. And at the meeting everyone was charming as ever to me and delightful. I didn't mention the article. I needed to understand what it was about."15 That weekend Woodford met with his friend, a director of another Nikkei listed company, and he translated the article, page by page. Woodford reflected, “It was clear that the article was well substantiated, it was credible, it was specific, but I still found it hard to believe."¹6 It revealed that Olympus had acquired three companies, with only nominal returns, for about $1 billion at current exchange rates. The three companies were a mail order face cream company, a company that made plastic plates for microwaves, and a recycling company. Olympus had also paid in 2010 nearly $700 million in transaction fees to Axam and Axes, relating to the 2008, $2 billion acquisition of Gyrus, a UK health care company, which had only earned about $20 million in post profits annually - a multiple of a hundred. When Woodford went into the office on the following Monday morning, August 1, 2011, he heard nothing from either Chairman Kikukawa or Vice President Hisashi Mori about the Facta article. Feeling frustrated and confused about this, he asked two of his colleagues whom he trusted if they had heard of the article. They had, but Kikukawa had advised them not to discuss it with Woodford. "Alarm bells started ringing-why would the Chairman be telling people not to discuss an issue – particularly such a significant issue with me? I was the president of the company: "explained tv♫ I A 3 Find text or tools QA AUG 11 X W P о & 10 DOCX Sign in ប 99 3 24 < с 1:1 Q
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