Buy Olympus Corporation Case Study

Buy Olympus Corporation Case Study
Recent cases provide insight into the role that an unethical corporate culture plays in financial
statement fraud. The case of financial statement fraud in Olympus Corporation, a Japanese firm,
provides the opportunity to examine how national culture plays a role in corporate governance
and fraud detection. This case study focuses on the impact of Japanese culture on the corporate
culture of The Olympus Corporation, and how that corporate culture resulted in financial
statement fraud.
Keywords: Olympus Corporation; Financial Statement Fraud; Corporate Culture; Japanese Culture; Case Study
BACKGROUND
n April 1, 2011, Michael Woodford became the first non-Japanese president and COO of Olympus
Corporation. He was fired six months later on October 14, 2011. In a press conference, Tsuyoshi
Kikukawa, Chairman of the Board of Directors of Olympus stated, “We hoped that he could do things
that would be difficult for a Japanese executive to do. But he was unable to understand that we need to reflect a
management style we have built up in our 92 years as a company, as well as Japanese culture” (Dye, 2013).
Woodford’s tenure as President was rocky. In July of 2011, after being in office only about three months,
Woodford received an e-mail directing his attention to an article in a Japanese magazine (Facta) that accused
Olympus of financial statement fraud. His questions to Kikukawa about the allegations against the company were
not fully answered. In early August, Woodford learned that others in the company were instructed by Kikukawa not
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to tell him about the article in Facta. Kikukawa and other executives of the company began treating him coldly. In a
series of letters to the Board of Directors, Woodford asked for details regarding the accounting transactions in
question; he received no clear response to his questions, and was subsequently dismissed by the Board.
Realizing that the likelihood of financial statement fraud was high, Woodford blew the whistle on the
company, exposing the suspect transactions. This case study focuses on the impact of Japanese culture on the
corporate culture of The Olympus Corporation, and how that corporate culture resulted in fraud.
FINANCIAL STATEMENT FRAUD
According to the 2012 Report to the Nations (ACFE, 2012, p. 10) published by the Association of Certified
Fraud Examiners, financial statement fraud is a scheme “in which an employee intentionally causes a misstatement
or omission of material information in the organization’s financial reports (e.g., recording fictitious revenues,
understating reported expenses or artificially inflating reported assets).” While financial statement fraud was
involved in less than 8% of the cases studied, it caused the greatest loss, with a median loss of $1 million. Financial
statement fraud can have a devastating effect on a corporation and its stakeholders; many cases end in bankruptcy of
the firm. According to the report (p. 38):
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Journal of Business Case Studies – Second Quarter 2014 Volume 10, Number 2
Copyright by author(s); CC-BY 176 The Clute Institute
A poor tone at the top contributed to 9% of all the fraud cases reported to us, but was cited as the primary factor in
18% of cases that resulted in a loss of $1 million or more. This reinforces the importance of a proper ethical tone
from management in protecting an organization against the largest frauds – those cases that have the greatest
potential to cripple the organization’s finances and reputation.
CORPORATE CULTURE AND FINANCIAL STATEMENT FRAUD
Recent cases provide insight into the role that an unethical corporate culture plays in financial statement
fraud. A corporate culture that emphasizes profits and stock prices creates an environment in which managers feel
pressured to produce favorable financial statements (Summers