Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Question 1.a. How did Olympus get into trouble in the first place? 1.b. What went wrong?
1.c. How did Olympus get off the straight and narrow path?
Question 2.a. How did management at Olympus react to the problem? 2.b. How did this
initial problem develop into "rottenness at the core"?
Question 4.a. In retrospect, what kinds of systems would have prevented Olympus from
becoming rotten at the core? 4.b. In fact, is any kind of system truly fail-safe?
Question 3.a. In retrospect, how should the problem, once it was apparent as such, have
been remedied? 3.b. What sequence of events would have ensued if Olympus has admitted
its mistake and taken appropriate action?
Introduction
This case is based on the article, Panel Calls Olympus Rotten at Core, which appeared in
the Wall Street Journal on December 7, 2011. The article is about Olympus accounting
scandal last year, in which it was revealed that the company had been hiding almost $1.5
billion of investment losses from public view as one of the largest corporate fraud in
history.
The Olympus losses date back to the 1985 Plaza Accord (an agreement to devalue the U.S.
dollar), in which Japan agreed to float the yen. Within five years the currency nearly
doubled in value, crippling export-dependent Japanese multinationals like Olympus. The
ensuing rise in the yen dented the companys operating profit, and Olympus decided thatit
should diversify its core business with zaiteku, or financial investments. Since it didnt go
well, Olympus was saddled with losses from investments that turned sour. Instead of
cutting the companys losses, former vice president Hisashi Mori and Hideo Yamada made
even riskier bets on derivatives and complex structured bonds. As a result, in 1993 the
losses continued to grow. By the late 1990s, Olympuss unrealized securities losses had
grown to nearly 100 billion, or more than $1 billion.
Thinking of ways to avoid that exposure, Mori and Yamada, with the help of two more
brokers, devised a plan to transfer the bad assets off Olympuss books to firms that werent
officially connected with the company and so wouldnt appear in Olympuss accounts
(tobashi technique). Between 1998 and 2000, Olympus moved 65 and 60 billion worth of
bad assets off its books through "European and Singapore routes. Olympus also acquired
three small companies in Japan for a total of $773 million, only to write down most of
