Corporate Scandal In Japan And The Case Study Of Olympus

Igor Prusa, Graduate School of Interdisciplinary Information Studies, The University of Tokyo [About | Email]

Volume 16, Issue 3 (Discussion paper 2 in 2016). First published in ejcjs on 23 December 2016.


A number of high-profile corporate scandals were reported in Japan in 2011, and the accounting scandal of the Olympus Company was among them. During 2011, suspicions surfaced that Olympus had been engaging in improper accounting practices for over 20 years. The main aim of this case study is to delineate the scandal narrative while emphasising the performance of its main actors: The Olympus representatives, the main whistleblower (Michael Woodford), and all the media outlets that participated in the scandal (both mainstream, tabloid, and foreign). It was precisely the reluctance of the mainstream media to publish new of the corruption on the one hand, and the vigilance of the foreign and tabloid media to amplify it on the other, that contributed to the outcome of the scandal.

Keywords: Olympus, scandal, corporate governance.

1. Introduction

A number of high-profile corporate scandals were reported in Japan in 2011, and the accounting scandal of the Olympus Company was among them. Being the third largest publicly listed Japanese company, Olympus (established in 1919) was in 2011 an enterprise with around 40,000 employees and over 70 percent of the world’s medical endoscope market. Although a strong medical business, lately it has been performing rather poorly in the camera business. During 2011, suspicions surfaced that Olympus had been engaging in improper accounting practices for over 20 years. It had allegedly circumvented relevant laws and continued to conceal its losses by transferring the financial instruments relating to its unrealised losses to several funds that were not part of the Olympus group. The scandal attracted global public attention, especially after the CEO and president of Olympus at that time, Michael Woodford, was expelled by the board of directors. After his removal, the scandal was fully exposed in The Financial Times, and Woodford brought charges against Olympus with the UK Serious Fraud Office (SFO). By 2012, the scandal had developed into one of the biggest and longest-lived loss-concealing financial scandals in the history of corporate Japan. In 2012, the scandal resulted in the resignation of the majority of board members, and the company settled its dispute with Woodford with a payment of more than 10 million pounds. In 2013, the former directors of Olympus, and its statutory auditor, were sentenced to suspended prison terms. The main narrative of the Olympus scandal took around 12 weeks; hundreds of billions of yen in shareholder value were wasted. In the aftermath of the scandal, Woodford published a best-selling book titled Exposure: Inside the Olympus Scandal (New York, London: Penguin; translated into Japanese under the title Kainin). A feature-length documentary in Japanese/French production, based on the book Samurai to Orokamono (Tokyo: Kodansha) by Yamaguchi Yoshimasa from 2012, was titled “Samurai and Idiots: The Olympus Affair” (directed by Yamamoto Hyoe in 2014).

The main aim of this case study is to delineate the scandal narrative while emphasising the performance of its main actors: The Olympus representatives, the main whistleblower (Michael Woodford), and all the media outlets that participated in the scandal (both mainstream, tabloid, and foreign). I argue that it was precisely the reluctance of the mainstream media to publish new of the corruption on the one hand, and the vigilance of the foreign and tabloid media to amplify it on the other, that contributed to the outcome of the scandal. The exposure temporarily ridiculed the company in question, but it did not bring about any serious transformation of corporate corruption and corporate whistleblowing in Japan. While being directly related to this scandal, these two issues—namely the omnipresent corporate corruption in Japan, and the practice of internal whistleblowing—will be closely scrutinised, since they represent the main pathologies on the backdrop of the Olympus scandal, and many others that followed.

Who is Michael Woodford?

Michael Woodford is a British businessman, born in Liverpool in 1960. In 2004 he became head of Olympus’s medical division, and in 2008 he was appointed head of Olympus Europe. In 2011 he became the president and the first non-Japanese to be appointed as the CEO of the Olympus Corporation in Japan, but was removed from his post after serving only few weeks. Soon he became the central figure, and the main whistleblower, in exposing the Olympus scandal, which in the meantime developed into one of the biggest loss-concealing financial scandals in the history of corporate Japan. In June 2012 Woodford made an out-of-court settlement with Olympus over his dismissal. Some western media outlets (The Sunday Times, The Independent, The Sun) recognised Woodford as “Businessperson of the Year” in 2011, and The Foreign Correspondents’ Club of Japan (FCCJ) declared him “Friend of the Free Press” in 2015. Having being praised for his brave attitude during the scandal, Woodford now consults on corporate governance and whistleblower laws while using part of the reimbursement money for charities. Despite his “success” in the Olympus case, Woodford remains very cynical and skeptical about any possibility of the Japanese corporate governance to reform itself, which rendered his exposure as a mere “Pyrrhic victory.” Furthermore, in an interview for The British Chamber of Commerce in Japan (January 2014), Woodford actually discouraged Japanese junior company workers to blow the whistle on their superiors, given the nature of Japanese law and society. Also this points to the assumption that the Olympus case was anything but a precedent for transforming the whistleblowing practices and corporate governance in Japan.

The Main Scandal Narrative

The scandal emerged shortly after the new president, Michael Woodford, indicated in early October 2011 that Olympus had paid obscure companies that were used to hide old losses. Woodford appointed an outside auditor (PricewaterhouseCoopers) to confirm the allegation, but on October 14 he was dismissed as president, allegedly based on “obstacles” (shishō) and “divergences” (kairi) in management practices (The Olympus Corporation Website, October 14, 2011). The previous president, Kikukawa Tsuyoshi, reassumed his title, only to be replaced by Takayama Shūichi who updated the apologetic message on the same Website. While maintaining the official agenda, and continuing to shift the blame away from Olympus by all means, Takayama also insisted that the trouble was caused by various “speculations” (okusoku) in media reports. Olympus kept on denying any misconduct and blamed their “foreign boss” (gaijin shachō) for the immediate negative effect on the company’s stock price. Woodford was allegedly unsuited to running the company because he had failed to master Japanese business culture while making the scandal public (The Financial Times, November 8, 2011).

As a matter of fact, it was not Woodford, but the Japanese journalist Yamaguchi Yoshimasa whose story was the first one to expose the scandal based on internal gossip heard from another insider-whistleblower (Yamaguchi 2011; 2012). Yamaguchi’s article was released as a cover story in the Japanese monthly magazine Facta, revealing in detail that in 2011 Olympus was involved in an illegal practice of burying financial losses and running amok with senseless M&A (mergers and acquisitions; see Facta, August 2011). At that time, Facta was run by Abe Shigeo (the former financial reporter for Nikkei) who also unearthed a major scoop in 1994 related to Yamauchi Securities, where dummy companies were set up to absorb the losses (McNeill 2014). Prior to releasing news of the scandal in June 2011, Abe had actually sent a letter to Olympus’s PR office requesting an interview with the president, Kikukawa, but he was refused, and his inquiry concerning the irregularities was ignored (Woodford 2012). Precisely this arrogance and noncooperativity from the side of Olympus actually steered Abe and Yamaguchi toward their proactive approach in exposing the corruption.

The original article, itself still rather harmless, centered on suspicions as to why Olympus would pay such high prices (close to 70 billion yen) for three small venture companies. While this was becoming common knowledge (albeit only via internal gossip), the story prompted Woodford to inspect the case, only to find out that around 1 billion dollars in acquisition-related payments were used secretly to cover losses on investments dating back to the 1990s. At this point of the scandal narrative, Woodford decided to step in as the main whistleblower, and Jonathan Sable from The Financial Times, who was secretly contacted by Woodford, finally exposed the story on November 8, 2011.

In the meantime, Woodford tried to support his case by using the Japanese video-sharing Website Nico Nico Douga as a “democratic” medium, through which he communicated directly with the Olympus employees with no media-gatekeeping restrictions. Equally importantly, one former board member of Olympus (Miyata Kōji) launched an online petition supporting Woodford’s case in order to sway public opinion in Japan. The most important media exposure, however, was Woodford’s appearance at the Japan National Press Club (Nihon Kisha Kurabu). Woodford behaved in a typically non-Japanese way, but he had his performance skillfully administered by the charismatic veteran translator and trainee monk Waku Miller (at one point of the conference, Woodford half-jokingly called Waku the real “puppet master”). While effectively fanning the flames of scandal, Woodford-the-gaijin perplexed the reporters by describing the behaviour of Olympus as “monkey theatre” (sarushibai). He demanded to “live in a black and white world, not in a world of gray,” and even added that Olympus’s board of directors should include at least one woman.

After Kikukawa announced Woodford’s dismissal at an official press conference on October 14, the Japanese dailies steered toward their “objective reporting” (kyakkan hōdō), which basically turned them into PR tools of Olympus. They ignored the revelatory news or interpreted the event non-critically, sharing their viewpoints with the non-repentant Olympus. Even when some media voiced certain doubts, the top Japanese executives at Olympus refused to answer direct questions while blaming the media for misreporting the steps they were undertaking. Moreover, the Olympus board kept distance from Woodford, whom they attempted to frame as the “villain,” threatening to take legal action against him. Despite certain minor improvements in approaching the issue of whistleblowing in Japan (see below), the media reported that Woodford was dismissed on the grounds of acting arbitrarily on his own authority (dokudan senkō).

Immediately after Woodford blew the whistle via The Financial Times, he was approached by numerous journalists from global media organisations. Only then was the scoop eventually picked up by the mainstream Japanese media. In addition, Woodford gave two first exclusive interviews to Channel 4 News and Bloomberg. The Japanese mainstream media, including the business daily Nihon Keizai Shimbun, refused to publish the scoop. In the early weeks after the initial exposure, much of the Japanese mainstream media stood firmly by Olympus, taking the “see-no-evil” approach and ignoring the original story in FACTA. Via the club reporters, the media bosses imposed silence on the story as part of the “blackboard rule” (kokuban kyōtei), while others treated the case as a mere “confusion” (konran) in management (e.g. Yomiuri Shimbun, October 27, 2011). Only after the business press in Europe and America published the scoop (most importantly The Wall Street Journal, The New York Times, and Bloomberg), some local Japanese newspapers started to catch up as well. The leading Japanese economy paper Nihon Keizai Shimbun, which was supposed to be the most “responsible” medium in cases like this, stayed mute for a week while accusing Woodford of being a troublemaker. Further, the Olympus offices were unable to give any statement, or they were out of reach.

The scandal gained a new momentum when The New York Times (October 23, 2011) reported that the FBI was investigating the Olympus case. In the meantime, Woodford kept on actively approaching the media, eventually giving interviews to the Japanese commercial networks Fuji TV, Nippon TV, and even the public broadcaster NHK, which however censored the material by omitting all mention about the FACTA magazine (Woodford 2012). In a rather unusual move, Prime Minister Noda expressed his disquiet about the situation around Olympus (The Financial Times, October 31, 2011), which gave the scandal the irreversible status of a national/economic crisis.

On November 8, the Japanese media reported that Olympus had finally admitted that the company’s accounting practices were inappropriate, albeit downplaying the illicit practices as a mere “postponement” (sakiokuri). The leadership shifted the blame to the previous president (Kikukawa), one auditor (Yamada), and the executive vice-president (Mori). Within just few days, the share price of Olympus showed a more-than 80 percent drop from the day before Woodford’s dismissal one month earlier. In the meantime, Woodford gave up on a proxy fight to have himself reinstated as the head of the company prior to the shareholders’ meeting. After months of time, the media scandal finally climaxed. Even the conservative Yomiuri Shimbun (December 8, 2011) now perceived any reformatory attempt by Olympus as simply avoiding responsibility (marunage). The majority of board members resigned, Olympus settled its dispute with Woodford financially, and in February 2012, Kikukawa, Mori and Yamada were arrested for suspected violation of Japan’s Financial Instruments and Exchange Act (Kin’yū shōhin torihiki hō). In 2013, the former directors of Olympus were sentenced, along with the statutory auditor, to suspended prison terms. The verdict was justified by the sheer fact that they only “inherited a negative legacy” from their predecessors (Asahi Shimbun, July 6, 2013). Years after the scandal, it remained unclear who was to be held responsible for the cover-up, in that the former Olympus president Shimoyama Toshirō who at the beginning of the 1990s had instructed the board of directors to hide the losses, died in July 2013. In the same month, the Tokyo District Court rather symbolically sentenced one of the main handlers of the tobashi transaction (Nobumasa Yokoo) and his two accomplices to four and three years in prison respectively. In the meantime, Sony alleviated the financial impact of the scandal by investing into Olympus through a new joint venture. Early on, Olympus had started to advertise again in Japan.

Scandal Pathologies Related to the Olympus Scandal

The Issue of Corporate Corruption in Japan

The economy in general, and corporate scandals in particular should be analysed from within the culture-specific framework of institutions, traditions and moralities. Importantly for Japan, behaviours of blind obedience and deference are deeply ingrained within the traditional corporate culture. Apart from the safety/cover-up scandals, the most frequent root of corporate corruption in Japan lies in “creative accounting” (funshoku kessan), including the practice of tobashi (shifting the losses to different accounts), dubious merger and acquisitions (M&A), and generally making false statements in financial reports. These “trends” became most evident during the wave of Japanese corporate scandals of the early 1990s when companies were hiding losses from the asset bubble in temporary off-balance-sheet-havens. Consequently, at the end of this “lost decade” the Japanese market grew discriminatory, non-transparent and corrupt (Yukawa 1999). The roots of the Olympus scandal can be also directly traced to this historical period.

On the one hand, Japan is still often regarded as the world’s number one in business innovation (World Economic Forum 2015), while some aspects of Japanese corporate culture have become models for foreign companies. On the other hand, frequent corruption cases point to lower levels of corporate ethics. Needless to say, the behaviour of corporations not only in Japan also depends on the emotional attitude and manners of individual company managers (for instance, only two weeks after the Olympus exposure, the ex-chairman of the Daio Paper Corporation, Ikawa Mototaka caused serious financial damage to seven affiliated companies from which Ikawa had “borrowed” large sums of money in order to support his gambling habit).

The dynamics of the Japanese economy—as also the nature of Japanese power scandals—have begun to shift since the early 1990s. Many elite agencies including the Ministry of Finance and the Bank of Japan experienced scandals involving bribery and cover-ups. In a first string of financial scandals that followed the bursting of the bubble, it was revealed that each of the biggest Japanese security firms was in the past involved in insider trading (Yomiuri Shimbun, July 1, 2012). One of them, the Daiwa Bank, was accused by the US Federal Reserve of hiding more than one billion dollars of trading losses from federal authorities in collaboration with the Ministry of Finance. Furthermore, another string of the so-called sōkaiya/banking scandals loosened the bank ties with government in 1997 (see below).

One important factor in understanding corporate scandals in Japan, including the Olympus scandal, is the traditional form corporate governance, which is typical of opaque decision-making, hierarchy-driven culture, and internal managerial rigour. Some foreign elements were incorporated after the World War II, but corporate governance still somewhat differs from global standards. For instance, Japanese corporate culture usually does not require to have outside directors on the board, while various committees and panels often exercise full authority without being held accountable, thus facilitating a “system of irresponsibility” (as termed by Maruyama, 1969) in Japanese corporate culture. For instance, the outside directors at Olympus were often its business partners, or they hailed from the foundations to which Olympus had made donations. Olympus had an accounting auditor (KPMG Azsa) prior to the scandal, which actually did point out certain accounting irregularities, but this auditor was not re-elected as Olympus’s accounting auditor at the shareholders’ meeting in 2009 (see Maeda and Aoyagi 2013). Furthermore, while having no general code of corporate governance, Japan represents a rather unique system of cross-shareholding with a symbiotic relationship between companies, suppliers and the banks. This also impedes the institutional shareholders (kikan tōshika) from criticising the company’s board of directors if accounting irregularities emerge. In such settings, institutional shareholders (mostly banks and insurance companies) control large proportions of the share registers, making up for a concentrated, powerful group, which allows Japanese corporations to behave in the way they do. In case of Olympus, the responsibility and power rested mainly with the shareholders of the Sumitomo Bank. Besides, the members of a company’s founding families usually monopolise the power in Japanese management (this can be partly attributed to the culture of absolute obedience to the family heads, due to which the executives in charge of accounting often “fail” to report real data and other looming issues to the omnipotent board of executives). Finally, the situation becomes further complicated by established connections of the corporate bodies with Japanese crime syndicates. Such constituted corporate culture will not only make it difficult to avoid the in-group rules that hide or obscure various corrupt practices, but will also treat harshly any signs of whistleblowing.

The Issue of Whistleblowing in Corporate Japan

Following the infamous Mitsubishi whistleblowing scandal in 2000, the Olympus scandal once again brought to the fore the issue of whistleblowing in 21st century corporate Japan. Simply put, whistleblowing is based on leaking to the public (via some media channel) a certain illegal, corruptive, or unethical activity that was/is occurring in a private or public organisation. Generally, group membership affects ethical attitudes and behaviour in a country where the relationship between collectivism and corruption is recognised. In Japan, the social group norms are often more effective than the overall legal framework, while corruption and bribery refer to acts of exchange that exist in a “gray zone,” i.e., outside the range of customarily defined rules. In other words, failure to abide by the law in Japan may be known to, but not condemned by, the group. In this light, avoiding the leaking of scandalous information in order to maintain the group can be considered “public morality,” although it contradicts with the laws related to whistleblowing.

Despite the often proclaimed strong unity (ittaikan) within every organised social group in Japan, there always exists a majority of loyal “core members,” and a minority of less committed “peripheral members” (Stockwin, 2008). The leaders of the former may know about some ongoing corruption, but they do not question it, or they ignore it since they operate under instructions from the top elites and family heads. Corporate social responsibility in Japan aims to ensure that corruption is prevented before it happens. If corruption becomes dysfunctional, and the main culprit is indicated, he is dismissed quietly, while his crime is covered up (Kerbo and Inoue 1990; Inagami 2009). Prior to the scandalisation process, the peripheral platform becomes further divided into what Sherman (1978) recognised as the “evil fringe” and “zealot fringe.” These two fringes are both equally perilous for any corrupt system: the evil fringe is usually committing corruption beyond limits, while the incorrupt zealot fringe engages in gossiping about a certain wrongdoing.

In the case of the Olympus scandal, the corruptive practices of hiding losses were circling around for a very long period of time in a form of internal gossip (Yamaguchi 2012). Generally speaking, we recognise three main types of gossip (both socially-integrative and disruptive) that can lead to social consequences of both an individual and collective nature. The transactional argumentation lies in an assumption that gossip is conducted by individuals, seeking to forward their own interest (symbolic, material) by manipulating cultural codes and denigrating others. Once its articulation is made public, a scandal can be born out of a seemingly innocent rumour. Furthermore, the functionalist argumentation stresses that gossip wields a certain integrative potential: it helps to maintain group collectivity and solidify social ties between its practitioners (e.g. Gluckman 1963). Most importantly for this case study, the democratic argumentation implies that in the civic sphere (the same as in corporations), it is precisely the rumour-mongering spectator who is able to maintain a network of information (e.g., in the form of dissent), while it is usually not easy for the authorities to detect the source of civil gossip and control its transmission. This was also the case at Olympus: many company members were aware of the gossip regarding the illicit accounting. They communicated it only on an internal level, but in this case, the brave “internal whistleblowers” transmitted the negative gossip to the unbiased media. These whistleblowers are usually company zealots who inform the management about some deviation for the sake of improvement, but they can also belong to a group which is cooperating with, but located outside of the corrupted center.1

Perhaps contrarily to expectations, internal whistleblowing (naibu kokuhatsu) is not rare in Japan, and it seems to be on a rise since the new millennium. The first high-profile instance of corporate whistleblowing occurred in 2000 when an employee at Mitsubishi Motors exposed the company’s cover-up of accident-causing defects. The Mitsubishi scandal, followed by dozens of other whistleblowing incidents (most importantly the mislabelling scandal of the Snow Brand Food Co. from 2002) brought the issue of whistleblowing in Japan to the fore. The Japanese legislature in 2004 did attempt to legitimise corporate whistleblowing via the Whistleblower Protection Act (Kōeki Tsūhōsha Hogo Hō), but the preconditions for enjoying statutory protection from retribution became paradoxically even tougher (see Wolff 2004).

Some believe that nowadays many corrupt in-group practices in Japan are often exposed by the employees themselves (Inagami 2009; Matsubara 2014). This can be partly explained by a snowball effect, in which each revelation of wrongdoing motivates more whistleblowers to come forward. Besides, these occurrences cast further doubt on the stereotype that Japanese employees exhibit a single-minded devotion to a group to which they belong. As Martin Fackler observed, Japan now routinely sees several scandals a year that are initiated by employee whistleblowers (The New York Times, June 7, 2008). On the other hand, however, other observers believe that despite the existence of the whistleblower laws, the Japanese will always strongly hesitate to accuse their employers. Already prior to the Olympus scandal, many Japanese professors and lawyers grew skeptical about Japanese business ethics which values business at the expense of the morals (e.g. Daily Yomiuri, May 24, 2004). Besides, some whistleblowers expose their company’s wrongdoing simply because they are afraid of being arrested (this was the case of Akahane Kiroku, who in 2008 blew the whistle in a false labeling scandal of the meat processor Meat Hope). Most recently, writing a story that eventually exposes political corruption can now be regarded in Japan as misusing private information, carrying with it the danger of fines and imprisonment. This new rule was approved in December 2013 via the Special Secrecy Law (Tokutei himitsu hogo hō).

In modern Japanese history, the act of whistleblowing was almost absent, while eventual whistleblowers were ostracised. Despite the aforementioned exceptions, many Japanese scandals indicate that this tendency persists until today. The Whistleblower Protection Act aims to encourage corporate whistleblowing in Japan, but the way it was formulated will hardly encourage whistleblowers, who are protected far less than in the West (Wolff 2004; West 2006). Consequently, Japanese whistleblowers will hardly be protected for revealing corruption of public office. For instance, earlier in 2008, another exposed whistleblower from the Olympus Company, Hamada Masahara, actually won his case in the Supreme Court, but workplace abuse continued despite the successfully concluded lawsuit. In April 2016, Hamada was reimbursed and reinstated, but he lost any chance of promotion or pay rise. This case reminds us of the aforementioned case of Akahane Kiroku—a sales executive at the Meat Hope Company, who revealed his company’s misconduct, but became treated like an outcast in his community while suffering depression. Despite his “Pyrrhic victory,” Woodford’s case proved that there will be little or no tolerance for whistleblowing in Japan, while the aforementioned Special Secrecy Law (Tokutei himitsu hogo hō) from 2013 only makes whistleblowers and journalists even more uncomfortable.

Interpreting the Performance of Scandal Actors

Scandals are “fairy tales for adults” (Burkhardt 2011) with typical actor-categories: the protagonists (“heroes”) who fight for the “good cause,” antagonists (“villains”) who violate rules and represent danger for social system, and finally the victims (usually citizens to be saved from the impact of corruption). Such narrative structuring is, however, never fixed, and it largely depends on the media framing (i.e., the ‘facilitating-guilt’ frame versus the ‘excuse’ frame, or setting no frame at all by overlooking scandal), and on the public performances of the main scandal actors. Also the larger sociopolitical context can matter. For instance, the Olympus scandal occurred one year after the disastrous Tōhoku earthquake, followed by the nuclear crisis at Fukushima. Apart from the catastrophic atmosphere of the post-3/11 zeitgeist, the Japanese networks, along with the failing TEPCO Company, must have contributed to public skepticism when it became clear that they both were reluctant/too late to air specific info regarding the radiation leak. Besides, the year 2011 witnessed many other corporate scandals that must have only deepened public skepticism toward the latest developments in Japanese corporate culture.

The polarised framing in the case of Olympus/Woodford was clear: Woodford-the-villain (a foreign trouble-maker, leaking harmful information outside the Olympus family) versus Woodford-the-hero (an enthusiastic revelatory, attempting to “save” a dysfunctional corporation). At the outset of the scandal, Woodford was framed as a “villain” who through his non-Japanese, “arbitrary” moves disturbed the “harmony” of Japanese corporate governance while putting Olympus, its employees, and shareholders at risk. Once the scandal became global, owing to a handful of Japanese investigative journalists and the foreign media, Woodford succeeded to re-interpret his character in the eyes of the public as that of a “victim” of the Japanese corporate system. Related to this, Woodford compared himself to Horie Takafumi (aka Horiemon), who had his Livedoor scandal in 2006.2

 Although being foreign to Japan, Woodford was dismissed by his own company in a country where forced removal of a company president is rare. Besides, Woodford’s whistleblower-status allegedly put him in personal danger due to the alleged involvement of organised crime. On the one hand, the perceived threat of the yakuza can be partly attributed to Woodford’s growing paranoia during the scandal. On the other hand, however, there did exist a certain relationship between Olympus and organised crime: according to available information, Japanese organised crime had its own share in the Olympus scandal since over one half of the amount from the pool of questionable payments was allegedly channeled to yakuza syndicates (Facta, August 2011; Greenfeld 2012; Maeda and Aoyagi 2013).

Due to the course of his public performances, Woodford became gradually perceived as a “hero,” albeit motivated by seeking vengeance for his demotion. On the contrary, the top executives of Olympus (especially Kikukawa and Mori) were gradually steered toward the actor-category of “villain,” albeit motivated by sheer survival of their own characters. Their vilification solidified once the independent committee had released their damning conclusion related to the structural corruption at Olympus. The non-mainstream media pressure culminated as well: in the weeklies the Olympus leadership was degraded to “emperor without clothes” (hadaka no ōsama) (Gendai Business, October 10, 2011), while Woodford became labeled as a samurai among “idiots” (orokamono) (Yamaguchi 2014).

Generally speaking, media scandal is always a form of a more or less radical conflict where two main ideals (or their interpretations) are negatively polarised through public accusation and defense. First, the Olympus scandal was a conflict of two differing interpretations of “loyalty.” The Olympus leadership was primarily loyal to the traditional corporate principles of their predecessors—including the “necessary evil” of corporate cheating via creative accounting. On the contrary, Woodford (along with the primary whistleblower, who forwarded the gossip to Facta magazine) was loyal to the company, which was put into imminent danger through these illegitimate practices. Contrary to expectations however, his method for dealing with the issue was a transparent “forensic accounting” (as opposed to the “creative accounting” of Olympus).

Secondly, since Olympus was in 2011 an international company with both Japanese and foreign shareholders, the conflict occurred beyond the boundaries of separate cultures, triggering a “global scandal.” In other words, the conflict was simultaneously occurring on two levels: Olympus versus Woodford, and Japan versus “the world,” while at stake was not only defamation (meiyo kison) of the Olympus Company, but also denigration of the Japanese corporate system as such. Seen from a global corporate perspective, the scandal lay in the fact that the Japanese leadership refused a talented leader mainly because of his “non-Japanese” corporate values (transparency, honesty, superb qualification). On the contrary, seen from the perspective of traditional Japanese corporate culture, Woodford violated the unwritten rules of conduct by leaking sensitive information to the public, thereby seriously damaging the reputation of a leading Japanese company. In other words, the fundamental problem did not lie in an accounting misdeed, but in two differing ways of thinking. This provoked a scandal “crisis” that was initiated by a rather unfortunate reaction of the Olympus leadership (ritually dismissing the disloyal president), to which Woodford reacted in a non-Japanese way (becoming an aggressive whistleblower).

Thirdly, it is a fact that around 70 percent of the turnover on the Tokyo stock exchange market is realized by foreign investors. Consequently, this time the Japanese corruption involved not only the global media, but also the world of investors, and the overseas law-enforcement agencies (FBI, SFO). Along with the unsurprisingly delayed entry of the Japanese media, this was the decisive force, which impeded Olympus from treating problems as usual, i.e. through an orchestrated ritual of apology, a promise to investigate the case, and a routine move to establish ad hoc reform committee.

Finally, the Olympus scandal was a typical example of “bottom-up” mediation, this time significantly supported by foreign (media) pressure, or (media) gaiatsu (Prusa 2010) It was however a non-mainstream, Japanese economic monthly that made the initial exposure possible, based on which global exposure could only have followed. The editorial policy of the Japanese mainstream media at first did not acknowledge the scandal, because the scoop was too sensitive in terms of offending advertisers and damaging the status quo within business circles (zaikai). Even the Japanese magazines initially rejected the scoop because it was not based on official prosecution and thus the risk of being exposed to a lawsuit was too big (e.g. Yamaguchi 2011). Later on, especially the Asahi Shimbun and Mainichi Shimbun grew critical toward the case; however, it was the Japanese dailies that in the first instance took the see-no-evil approach and refused to perform the ideal role of media-watchdog. In the meantime, the independent investigative journalists disseminated the scandal (most importantly The New York Times correspondent in Tokyo, Tabuchi Hiroko, the investigative journalist Yamaguchi Yoshimasa, and the Facta editor Abe Shigeo). Only then could the global media networks make the scandal a top story in the Western media (the British television news company ITN even sent a team of reporters to Tokyo to cover the story). Without such intervention (alongside the notoriety Woodford received as a whistleblower-turned gaijin shachō), the misconduct would have gone unnoticed, and thus unpunished.

Figure 1. The Olympus scandal flow

Prusa, Figure 1

Source: Author

Olympus and Beyond

Not long after the Olympus scandal, many cases of corporate corruption were exposed one after another: The Takata airbag/safety scandal (2013), the Toshiba accounting scandal (2015), the Asahi Kasei data fabrication scandal (2015), and most recently the Mitsubishi data manipulation scandal (2016). Without learning a lesson, much of the trouble that these Japanese corporations got into in the course of their scandals resulted from the same pattern: denial and exposure. Corporate governance through outside directors had been reduced to an ineffective formality, while the denial stemmed from superiors’ pressure to achieve goals in the context of a corporate culture where going against the wishes of one’s boss was unacceptable. Exposure is initiated only by the “heroic” internal whistleblowers who forwarded sensitive information despite the ostracism and stigmatisation which awaited them.

The companies in question have been tainted by profit-padding scandals, in which high-handed bosses for years systematically pushed their subordinates to cover-up weak financial figures. This sort of amoral self-preservation does not make for a scandal. It is more importantly the media’s stance (most importantly the Nikkei in case of corporate scandals) and negligence to uncover most of the corruption, which only confirms the firm modus operandi of the Japanese mainstream media that have their own amoral reasons not to disrupt the fabric of things beyond the tatemae surface. Thus, similarly as in the case of Olympus, the Toshiba scandal was initiated from the outside (Bloomberg News, quoting unnamed sources, reported that the US Justice Department and the Securities and Exchange Commission were examining whether any fraud occurred over a loss booked by Toshiba’s US nuclear business unit Westinghouse), while the Mitsubishi scandal was triggered by the internal “zealots” located outside the corrupted centre (i.e. the whistleblowing engineers of the Nissan Company who were forming a minicar joint venture with Mitsubishi since 2010). Notwithstanding the new disturbance around the structural corruption of Mitsubishi, the company in question has already submitted documents to the government with the corrected mileage, and when the procedure is completed, it can again start selling vehicles. The message was clear: Mitsubishi (the same as Olympus or Toshiba) displayed their regret for the exposure (not the corruption per se) which only caused nuisance (meiwaku), but must be understood as an inherent part of competitive corporate capitalism. The case of Olympus was different mainly because the key person, Michael Woodford, was a foreigner who refused to accept the ritual of exclusion after humiliating the family/company he belonged to. Instead, he himself triggered the scandal by blowing the whistle, and despite his non-Japanese performance during the scandal, he succeeded to turn public opinion against Olympus.


In concluding his book in 2012, Woodford was correct when lamenting that he was “winning the argument, but losing the war.” In a war, where “Japan’s enemy is Japan” (Yukawa 1999), the consequences of the Olympus scandal could have been anything but transformative, both in terms of corporate governance, and in terms of the mainstream media’s social responsibility. Furthermore, some observers falsely claimed that Olympus was more of an isolated case than an example of business culture. Having similar features of corporate corruption, Olympus was preceded in 2006 by the Livedoor scandal (see above), and yet another bigger corporate scandal (the Toshiba accounting scandal) emerged in 2015. While differing in extent (i.e., the accounting irregularities of Toshiba were 30 times larger than Liverdoor’s fraud), these scandals involve the same type of corporate corruption: a long-term attempt to exaggerate earnings (Toshiba, Livedoor) or hide losses (Olympus) by insiders directed from the very top. Later on, the Japanese corporate government was scrutinised as a “culture of deceit” (kyogi taishitsu) even by the mainstream Japanese media (e.g. Mainichi Shimbun, July 22, 2015). Rather unsurprisingly, these media unanimously agreed to make it a legal requirement to hire outside directors once the scandal was concluded. This idea was however refuted by the Japanese business lobbies that also opposed the aforementioned Whistleblower Act (Asahi Shimbun, July 6, 2013)

Woodford was perceived as setting a new precedent for whistleblowing in Japan, adding to aforementioned whistleblower-related laws that were passed in the previous decade, but also here no substantial transformation occurred. In fact, earlier in 2008, another whistleblower from the Olympus Company, Hamada Masaharu, won his case in the Supreme Court, but his workplace abuse continued despite the successfully concluded lawsuit (e.g. Asahi Shimbun, July 11, 2012). In April 2016, Hamada was reinstated and reimbursed with 11 million yen, but he will have no chance of promotion or pay rise. Besides, the scandal further deepened cynicism in the way Japan operates the capital market, and it is safe to assume that no gaijin boss will be allowed to run large Japanese organisations in the near future.

Regarding the media-watchdog role, the Japanese mediascape did not undergo any serious liberal transformation either. On the contrary, in 2015 the conservative Nikkei purchased the independent Financial Times. Apart from the well-known fact that changes in ownership and corporate takeovers often bring different values, objectives, and ultimately the content of the news (Shoemaker and Reese 1996), this takeover can be related to the Olympus scandal, prior to which Nikkei functioned as “public information section” of the Olympus Corporation (Sankei Shimbun, July 24, 2015), while The Financial Times was the first foreign medium to expose the scandal. Despite the gravity of the Olympus scandal, a revolution in corporate whistleblowing did not occur, while the never-ending chain of corruption scandals immediately after the Olympus case only confirmed that corporate fraud is here to stay. 


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[1] For instance, in the 2011 gambling scandal of the Daio Paper Corporation, the main whistleblower belonged to a group subsidiary of Daio (Yomiuri Shimbun, November 24, 2011). Similarly, in case of the 2002 cover-up scandal related to falsifying reports on nuclear safety by industry officials and public services, the person who blew the whistle was a foreign subcontractor (Kingston 2004). It is however not only the victims of corruption since the elites themselves can become zealot-whistleblowers—such role was assumed also by Michael Woodford in the Olympus scandal. This phenomenon is however not limited to Japan: among the top global zealot-whistleblowers today consider Chelsea Manning who leaked classified military information to Wikileaks in 2010; Edward Snowden, who in 2013 publicly disclosed classified files of the United States National Security Agency; or the anonymous hacker who leaked the so-called Panama Papers in 2016.

[2] Horiemon is the former head of once hugely successful Japanese Internet company Livedoor. The un-Japanese and easy-going entrepreneur was popular especially among the Japanese youth when criticising conservative business circles, but he was effectively demonised by the mainstream media. At the beginning of 2006, prosecutors raided Horiemon’s company and arrested him on suspicion of market manipulation, and this led to the disastrous loss of his company’s market value. In a nationally publicised accounting scandal, Horiemon was accused of securities fraud, sentenced to two and half years in prison, and released on parole in March 2013. After his release, Horiemon was successfully “reintegrated” and returned to public life while publishing books and appearing in Japanese media.

About the Author

Igor Prusa received his first Ph.D. in media studies (Charles University of Prague, Institute of Communication Studies and Journalism), and is currently a Ph.D. candidate at the University of Tokyo (Graduate School of Interdisciplinary Information Studies). His research interests include Japanese media culture, media scandals, and cultural (anti)heroes. Majored in Japanese and German Philology, his master’s thesis dealt with textual and visual analysis of Japanese advertisements. His first doctoral thesis explored the character and transformation of media, communication and mediopolitical complex in Japan, and in present doctoral thesis Prusa theorizes Japanese media scandals. His academic articles include Media, Scandals, and Society: a theoretical introduction (University of Tokyo, 2015), Megaspectacle and Celebrity Transgression in Japan: the 2009 Media Scandal of Sakai Noriko (Palgrave MacMillan, 2012), or Scandals and their Mediations: Theorising the Case of Japan (electronic journal of contemporary japanese studies, 2010). Apart from his academic activities, Igor Prusa is an active performer and composer in Japanese music project Sushi In Da House.

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