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Sunday, Dec. 2, 2012

CLOSE-UP: Michael Woodford

Japan's whistle-blower supreme speaks out

Former Olympus exec Michael Woodward shares his thoughts on the company, Japan and more.

Michael Woodford glances out of the floor-to-ceiling window of his multimillion-pound loft apartment, which looks out across the River Thames toward the City of London, the so-called Square Mile that is among the world's leading financial and commercial centers.

News photo
Laying bare: Ex-Olympus President and CEO Michael Woodford, and his book, "Exposure," which came out this week. ILLUSTRATION BY ANDREW LEE
News photo

The 52-year-old Briton has effectively been jobless since being ousted for the part he played in Japan's own Enron scandal, when he blew the whistle last autumn on a 13-year, ¥130-billion accounting fraud at Olympus Corp., the global company he was running at the time.

Woodford, who was already president, had been appointed chief executive officer only two weeks earlier — groomed after 30 years, most of which had been spent in Europe, at the maker of cameras and endoscopes. "I'd proved in America and Europe that I understood the business. I wasn't a bureaucrat. I'd proven that I could realize the potential of Olympus," he says emphatically.

But soon after reaching the top, he discovered that senior board members had sought to cover up loss-making securities investments through accounts in the Cayman Islands, among other locations, and by vastly overpaying for tiny firms with no turnover in an attempt to square Olympus' accounts.

After demanding answers from the board over the payments — "they just didn't want to turn over those stones," he explains, Woodford was fired in October 2011 on the grounds that "he couldn't understand Japanese management style and was acting arbitrarily and peremptorily."

He fled his adopted home in Tokyo in fear of his life amid rumors of yakuza involvement in the scandal.

Job offers have since come in from firms in Britain and Japan. But so far Woodford, who does not speak Japanese, has demurred. Instead, he has carried out public-speaking engagements and has written "Exposure," a book published last week about his experience as one of the corporate world's highest-ranking whistle-blowers.

As president of Olympus, he ruled over a firm with 40,000 employees and a net income of billions of yen a year. It is not hard to imagine Woodford — named Business Person of the Year 2011 by the British-based newspapers the Sunday Times, the Independent and the Sun — striding through the City of London, briefcase in hand.

Yet something about the idea snags with that stereotype — not least being that he grew up in the port city of Liverpool in northwest England, in a Victorian terrace house with an outside toilet in a backyard shed, left school at 16 and says his two passions in life are human rights and road safety.

His vision of how corporations can be both ethical and profitable would appear to put him at odds with most boardrooms around the world: He recently wrote an op-ed piece for a newspaper praising a German pharmaceutical company that remodeled its distribution network to prevent U.S. prisons buying one of its drugs for use in executions. Meanwhile, he says his two teenage children won't see a penny of the £10 million settlement he received from Olympus, and will have to earn their own way in life.

So when he says he is sympathetic to movements such as Occupy Wall Street, it seems more than mere lip-service. In a world overrun with global multinationals, "Exposure," which looks set to be a best-seller, could turn Woodford into a new kind of business star: a globetrotting executive with a conscience — if the corporate world is bold enough once again to grant him a seat at its boardroom table.

I last saw you at the end of May at an employment tribunal hearing in London that awarded you that £10-million settlement for unfair dismissal and discrimination. What have you been up to since then?

I wrote the book. It wasn't a simple book to write. There's an enormous amount of fact-checking involved. Three separate firms of lawyers tested it from a legal point of view.

With hindsight, do you have any regrets about how things worked out for you at Olympus?

At an extraordinary general meeting on April 20, 2011 (at which shareholders approved a new board after Woodford had already failed in his bid to be reinstated), the remaining members of the board — the ones who hadn't been arrested or indicted — all stood down. There was a new board, which needed to move on.

I want the best for the company; good luck to them. And I wanted to move on.

Do you regret that the shareholders didn't back your reinstatement?

(Pause.) I don't really feel that. My life has moved on and I feel very positive about life. If I knew where I would be at the end of this nightmare, which is a good place to get to, it would have been fine, but at the beginning clearly I didn't know where it was going to go or how it would end.

News photo
Two's company: Michael Woodford in autumnal Lichfield, central England, with his older sister, Yvonne, when he was aged "4 or 5." PHOTO COURTESY OF MICHAEL WOODFORD

I feel very sorry for Japan that it is so broken (because of) what I call the "perverted golf-club mentality" — the big corporate networks made up of the banks and insurance companies and the big corporations.

What do you mean by the "perverted golf-club mentality"?

Their interest is the protection of the interests of the members. It's not about shareholder value or what's right or wrong even. And that was demonstrated graphically with what the shareholders did at Olympus — that couldn't have happened anywhere else in the world, as their own fiduciary duty would be questioned.

How could they not have made a clear statement after the stock price fell by 81 percent, with ¥7 billion written off (the value of the company)?

Aside from Olympus, look at the consumer-electronics companies in Japan compared to U.S.-based Apple or South Korea's Samsung. The top 40 technology companies in Japan add up to the market capitalization of Samsung now. We've seen Panasonic, Sharp and Sony have their debt ratings cut to junk status. Yet the banks are still lending to them. Those companies would be allowed to fail elsewhere. But in Japan there can be no failure in the system.

Regarding the pressure you were under at the height of the scandal, you said: "If I cracked, the family would go down with me." Did you ever hesitate before blowing the whistle?

No, never. I wasn't impetuous. I tried over a period of many weeks (to get answers from the company). I wrote six letters to the board in the most explicit terms. What surprised me was that you write those sorts of letters and you include a report from one of the big-four accounting firms totally condemning the $700 million in acquisition fees paid when Olympus bought three companies with no turnover for $1 billion — and any other board in the world, especially the outside directors, would say: "We have to do what Mr. Woodford's suggesting; we have to investigate this." But the 14 directors, three of whom were outside directors, were so blinded.

I don't think that attitude and approach would be any different across many companies in Japan — not the fraud but the complete and utter denial of reality.

So how can top management in Japan be improved in your view?

You're talking about huge social change. I think you need a very strong leader. The status quo in Japan has to be broken. My politics are left-wing, but with (nationalists) Shintaro Ishihara and Toru Hashimoto going together (in this month's general election), part of me thinks it's whatever it takes — left-wing or right-wing — to get Japan to function in a better way.

Do you think that's a realistic possibility?

The likelihood is that it probably will carry on like this and all that will happen is that the living standards of the Japanese will go down into a terrible, terrible place.

At the moment the restaurants are busy, everyone's fine; it's all okay. But remember, the country is on borrowed money. It's pumping money into all its wonderful projects and pensions and healthcare — but if that 235 percent figure (Japan's public debt is 235 percent of its annual gross domestic product, the highest percentage of any nation in the world) keeps on going up ... .

I hear the arguments that Japan doesn't have to tap the world capital markets because domestic savings are so high, but Japanese citizens are at liberty to take their savings offshore. Japan would then run out of money in a matter of weeks.

I advise some of the world's biggest financial firms on where and how they should position themselves in relation to Japan. There's so much interest in Japan but not for the right reasons.

I meet with people who are brilliant financial analysts and they will take me through many of Japan's largest companies and it's horrible. The banks lend huge amounts of money to indebted companies — but with no risk premium. That's why you're seeing credit-default swaps (tradeable insurance policies against default, whereby an investor pays a premium to another who, in return, pays up if the borrower defaults) shooting up for Japanese corporations.

Aren't the companies in Japan with more foreigners in their boardrooms actually the least successful?

This is the Keidanren (Japan's influential business lobby) and their mischievous nonsense. When this scandal appeared, Prime Minister Yoshihiko Noda said that it was very unfortunate but Olympus does not represent corporate Japan, which operates under the same rules of capitalism as elsewhere. He was right to speak out. But what he said, with respect, is utterly wrong — totally wrong.

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