1. Donna Moulton
AC-221-B
Professor Pannese
Ethics Paper
Due: 10/29/15
Olympus Scandal 2011
Olympus Corporation is a Japanese optical equipment manufacturer, who products range
from cameras and audio to medical and surgical, to science and industrial equipment, they are
publically traded on the Tokyo Stock Exchange. Olympus employs about 40,000 people world
wide. Tsuyoshi Kikukawa became president of the Olympus Corporation in 2001, since then the
company’s’ revenues have increased almost double from ¥467 billion to ¥847 billion with the
company’s profits reaching ¥35 billion. Olympus’s accounts for the year-end of March 31, 2011
totaled net sales of $10.6 billion and the total shareholders equity was $3.3 billion and assets of
$13.3 billion and intangible assets were $2.2 billion.
The Olympus scandal was brought to light by Michael Woodford, Michael started
working for the Olympus Corporation as a salesman in 1981 and then later became the managing
director of the British medical subsidiary from there he later moved on to become the chief
executive of Olympus Corporation, a position he would not hold for very long. Woodford was
chief executive for two weeks when he would expose “One of the largest and largest running
loss-hiding arrangements in Japanese corporate history.” The Wall Street Journal. He was fired
from his position on October 14th 2011 for blowing the whistle on the Olympus corporation.
Olympus’s scandal can be traced back all the way to the late 1980’s and 1990’s. The
downward spiral of accounting fraud started when Olympus sustained large financial losses due
to Japans weak currency, these losses were concealed using a known practice called the Tobashi

2. scheme, this scheme of financial fraud makes a client’s financial losses hidden by an investment
which switches hands between fake portfolios or clients. By the year 2008 Olympus Corporation
purchases and acquires 3 European companies from Michael Woodford’s region, Woodford
should have been the one in control of making the European purchases but the entire process was
ran and controlled by the Tokyo office. While purchasing these companies Olympus pays more
than they are worth and middleman fees account for 30%, these deals end up exceeding the cost
of $2 billion. Michael Woodford attempted to resign from the company after the strange
purchases but later was promoted to oversee the entire European business for Olympus. Soon
after in 2011 Michael Woodford would become the new President and Chief operating officer.
Upon settling into his new position 3 months later a Japanese magazine named Facta soon writes
about the allegations of corporate irregularities and this article is brought to Woodford’s
attention. Again this time two months after the Facta article Woodford is emailed by German
colleagues who also tell him about the allegations against Olympus. Michael Woodford decides
to do some investigating of his own into the company he has been so loyally working for since
his twenties, he writes internal emails multiply times to the board of directors and the CEO but
each time he receives a response it is either a run around or is met with a polite refusal.
Following the refusals Woodford then contacts Tsuyoshi Kikukawa and meets with him to discus
the claims and allegations against the company and soon after Tsuyoshi Kikukawa resigns from
his position of CEO but remains a chairman of the board. October 1st 2011 Michael Woodford is
then promoted to CEO by a board of directors vote, Tsuyoshi Kikukawa’s previous role in the
company. The company then releases a press release about Woodford that states "the Board have
been extremely pleased with the progress made under Mr. Woodford's leadership in this role,
which has exceeded the expectations at the time of his appointment". Woodford now settling into

3. his new CEO role in the company continues to seek answers to the allegations against the
Olympus Corporation and since he continues to face dead ends and he decides to appoint an
outside audit practice to go over and investigate all the Olympus accounts. October 14th 2011
two days after appointing the PwC audit practice Michael Woodford is terminated from his CEO
position following a short board meeting. Upon being terminated from the role of CEO for
Olympus Michael Woodford discloses his concerns about the Olympus Corporation allegations
publicly blowing the whistle on the company. In the next following weeks the Olympus
Corporation makes admissions about the now public scandal, after the scandal is brought to light
Kikukawa and Mori take their leave and resign from their positions of chairman of the board,
other officials and board members make known that they will also be resigning in 2012. During
the month of December Michael Woodford upon hearing that members of the board have
resigned in their positions then decides to try and regain his role as CEO of the Olympus
Corporation but fails doing so due to lack of company support due to Olympus arranging to
weaken voting power by making stock arrangements. Following that the Olympus corporation is
then raided by law enforcement and 7 arrests are made in the Tokyo headquarters: ex-president
Tsuyoshi Kikukawa, former executive vice-president Hisashi Mori, former auditor Hideo
Yamada, former bankers Akio Nakagawa and Nobumasa Yokoo, and two others. After the
arrests Michael Woodford takes Olympus to court with a claim of damages but later settle out of
court for a sum of around £10 million.
“In an October 11 letter to Olympus’s chairman, Woodford described “a catalogue of
calamitous errors and exceptionally poor judgment which...has resulted in the destruction of
shareholder value of $1.3 billion.” Payments of $687 million, about a third of the Gyrus
acquisition cost, and estimated to be the largest M&A fee ever paid, were made to a Cayman
Islands special purpose investment vehicle that disappeared from view shortly after receiving the
final payment. This information was based on an investigation by PricewaterhouseCoopers,
which had been hired by Woodford. The recipients of the payments were said to be a U.S.
brokerage house and its subsidiary.”-

4. Since the scandal the Olympus Corporation has seen steady revenue with an increase in
revenue this past year with a total of 1,937.2 million dollars, with their cost of goods sold
reaching 742.2 million dollars, with assets of 9,971.6 million and total liabilities of 6,772.5
million, making this company still very lucrative despite their 2011 scandal. Compared to
Olympus Corporations competitors though we see that they are lagging behind in sales, Canon
their top competitor had a total revenue of 31,074.1 million and a total cost of good sold of
15,555.0 million, Canon’s total assets for 2014 were 37,188.2 million and their total liabilities
were 12,359.1 million and a net profit margin of 6.8% vs Olympus’s 1.9% net profit margin.
Although Olympus as a company is doing better since the scandal came out in 2011, they are not
seeing the sales numbers that their competitor Canon is reaching. This could be caused by a
multitude of factors. The lower numbers can be due to the tarnished reputation of the company,
brand awareness vs. brand loyalty , and because Olympus Corporation is a smaller company
thank Canon.
Bibliography:

5. "Olympus President: Will Do Utmost To Avoid Delisting"(subscription). The Wall Street
Journal. Dow Jones. 7 November 2011. Retrieved 20 October 2015.
"OLYMPUS | Information: Olympus appoints Michael C. Woodford to serve as President and
CEO". Olympus Corporation. Archived from the original on 20 October 2015.
Negishi, Mayumi (16 February 2012). "Former executives, bankers arrested over Olympus
fraud". Reuters. Archived from the original on 20 October 2015.
Verschoor, Curtis C. "Olympus Scandal Shows Need For U.S. Standards." Strategic
Finance 93.8 (2012): 12-61. Business Source Premier. Web. 29 Oct. 2015.