The loss-hiding accounts and the ousting of President Woodford — the Olympus scandal (2011)

The vessel of separation, and the one who spoke his doubt

What the Olympus affair showed is that even in a company whose shares are widely dispersed, with no controlling shareholder holding a majority, the machinery meant to oversee management can hollow out with ease. A handful of executives who knew the true state of the finances moved the losses off the books, and the board and the statutory auditors, harbouring doubts, did not press in. Even where ownership and management are separated, if no outside eye disciplines management, the separation instead conceals the wrongdoing. Without the accident of a foreign president, the loss-hiding might have been pushed off still further.

Heavier still is the fact that the board could remove, by majority vote, the very president who tried to set the wrong right. One who raised his voice from inside was driven from his post because of that voice. The body meant to watch had become one with the object of its watching. After the affair, the appointment of outside directors spread in Japan, and room opened for activist shareholders to engage with management; Olympus itself would welcome an American investment fund onto its board in 2019. However fully you furnish the vessel of governance, whether it can protect the one person who spoke his doubt is what divides a living vessel from a dead one. That question remains with corporate governance today.