3rd-party panel calls Olympus management ‘rotten’

A committee of lawyers and an accountant appointed by Japanese precision technology maker Olympus said, “The management (at Olympus) was rotten to the core and contaminated what was around it, creating in the worst sense a group mentality of the typical salarymen,” in reference to the company’s practice of “tobashi,” making losses “fly off” the books by transferring the numbers to where investors won’t see them.

In its 185-page report, the panel bashed Olympus for its “low level of transparency and governance,” saying, “Shifting losses off the books and trying to cover them up over a long period of time is the behaviour of those who do not understand compliance.”

The report said: “This is an incident carried out secretly by some executives under the leadership of top management. … Many on the board were yea-sayers and we cannot help saying the board had become a mere facade.”

According to the report, anyone objecting to the actions of senior executives could expect to get fired “even if it was the right thing,” such as former chief executive Michael Woodford, who confronted then-Chairman Tsuyoshi Kikukawa over suspicious fees the company had paid to unnamed consultants.

In earlier posts (dated Oct. 18 and Oct. 25), I talked about how this incident at Olympus sheds light on Japanese corporate culture. In the first post, I analyzed Kikukawa’s stated reason of “cultural differences” for firing CEO Michael Woodford. In my follow-up post, written after revelations of the company’s hiding losses became public, I expanded on the cultural aspects of this story.

I felt compelled to write a follow-up given that some of Japan’s elites are now stressing that the Olympus scandal is not how business is done in Japan.

Shortly after my Oct. 25 post, Prime Minister Yoshihiko Noda said: “What worries me is that it will be a problem if people take the events at this one Japanese company and generalize from that to say Japan is a country that (does not follow) the rules of capitalism. Japanese society is not that kind of society.”

After the Olympus panel released its report, Tatsuo Kainaka, a former Supreme Court judge who chaired the panel, said, “I think this can happen anywhere in the world, not just Japan.”

The fact that Noda and Kainaka became so defensive seems to confirm that the goings-on at Olympus are typical in Japan.

I agree with Kainaka that such behavior can happen anywhere in the world, but I think Japanese society facilitates such practices more conveniently than in the West.

Japan maintains a strict social hierarchy based on Confucianism, and adheres to an ideal of harmony, which is rooted in Buddhism. These elements lead to an unquestioning deference to higher-ups. While most managers in Japan are generally decent people, the system does allow more for abuses, such as in the extreme case of Olympus. Some American companies have certainly been known cook books on occasion, but such a practice goes against the stated values of Western societies more than Japanese. This is why so many commentators fear that the Olympus scandal is only the tip of the iceberg of corruption in Japanese corporations.