Monday, 17 October 2011

Corporate Japan at its worst


In the good old days when I was in business school, Japan could do no wrong. A million books were written on the Japanese style of management. America was bust, Japan was everything. Case after case taught at business school was on how gloriously managed Japanese businesses were. At that time the two words we were thoroughly sick of was Japan and Walmart ! Time has since proved that there is a fair bit to admire about Japanese management, but a lot that is thoroughly rotten.

A great example is what happened at Olympus last week. This is the company that makes cameras.They just fired Michael Woodford, their CEO, and a 30 year company veteran, two weeks after elevating him. They were brave enough to appoint a non Japanese as their CEO, one of a handful of Japanese companies to do so and foolish enough to sack him immediately. His crime - he didn't listen to the Chairman Kikukawa san and started probing into the financial skulduggery that seems to have gone on.

The skulduggery relates to the acquisition of Gyrus, made in 2008. The acquisition was for $2 bn. Olympus then made payments for advisory fees of $687 m to two virtually unknown firms. Nobody can trace who the owners of these two companies are. One of them, registered in the Cayman islands has since disappeared off the registry 3 months after receiving the last payment from Olympus. These payments were not disclosed to shareholders - instead they were hidden in goodwill by adding to the acquisition price. Now, who on earth pays advisers fees of $687 million for a $2 bn acquisition ?? Not even Wall Street is that greedy.

KPMG, their auditors disagreed with all this accounting wizardy and were promptly sacked for their endeavours.

Woodford started to enquire into this and was told to shut up and look elsewhere. His crime was that he did not listen.

Woodford was summoned to a Board meeting were he was told to zip his mouth and not speak. The solemn directors then proceeded to fire him. The function of the board, alas all too often in Japan, is to bow one inch lower than the Chairman. So much for corporate governance.

The rigidity of hierarchy in Japanese corporate life survives to this day, Grovel and obey without question. I am still amazed how they managed innovation with that culture. I am sometimes inclined to credit some divine providence for all the wonderful innovation in product and quality systems that came out of Japan. How else can you explain  that coming out of a Stalinist corporate culture.

The only lot who are thoroughly unimpressed by all this is the Japanese investor. He has cheerily driven down Olympus' share price by 24%. Kikukawa san and his deputy Mori san may still have to fall on their sword soon.

11 comments:

TheMillionMiler said...

Hmm. never thought this was possible in Japan. I always knew about the rigid hierarchy and the value paced on 'senior' and more 'experienced' managers in Japan. But channeling funds through Cayman or BVI or whereeverelse and doing an Enron was not in the scheme of things I would have considered attributable to Japan. Do you get a J-SOX now???

Vishal said...

Sorry affairs, Ramesh! Looks like it is not possible. On a second thought, looks possible for there are some shades of corruption in some or the other form everythere. There may be much more mud othen than the case in hand. At the same time, innovation and quality could be sole reason for their growth. Just a guess!

J said...

You have to admire people like Woodford who refuse to go down quietly. What an embarrassing mess for the company. Makes you wonder about all the stuff hidden in accounting numbers. I don't think the Japanese have a monopoly on crooked accounting but I guess a culture of subservience helps to keep it under wraps.

Ramesh said...

@kiwi - J-Sox in some form exists, only nobody gives a damn.

@Vishal - Of course corruption exists everywhere. Japan is a curious case. Most of their people are unfailingly honest and totally non corrupt. But their leadership - corporate and political, stinks.

@J - It must have taken a lot for Woodford, who is a 30 year veteran of the company, to do what he did. Oh yes - Japan has no monopoly on crooked accounting - in fact they may be babes in it - but the boards in Japan are mostly a worthless lot. Both in corporate life and in political life, their governance standards are low.

Appu said...

I would like to get your reading list :) When HP and Yahoo fires the whole world comes to know, why does people doesn't give importance to non-US things!!!

TMM said...

Matter of fact, nobody gives a damn to SOX - the corporates, the auditors, the managers who run processes, the shareholders and the SEC. Different matter that you and I ran a profitable business out of it!

Ramesh said...

@zeno - Oh thee is business news from all across the world - its just that many are unfamiliar with news fro other than India and the US.

@kiwi - Oh yes; of course. We made hay while the sun shone !

hemarao said...

This is interesting. Anyways kudos to the CEO for braving it up.

You too, Olympus!

It is really amazing how creativity still prevails amidst so much autocracy.
Divine providence indeed or
may be the employees bend an inch more but do what comes to their mind!


However, I have always admired the Japanese for their grit and indifference to show stoppers which makes them thrive in any condition.

Ramesh said...

@hema- Oh - there are many admirable traits in Japanese society. But leadership does not seem to be one of them !

Sandhya Sriram said...

there are two theories of creativity. the japanese were so process oriented that they could put a process to creative thinking as well. most of the innovations that japan comes up with are needs that are met. met exceptionally well.they have a mental resolve to keep working hard until they find a solution to anything. very different from the theory of creativity elsewhere, wherein one hasnt clearly defined a problem and bumps into something that makes a paradigm solution to a problem that is since identified. while results arent definitive but path breaking.

coming back on the topic of the post, I think respect to hierarchy is a variant of compliance and discipline and possibly essential for the japanese to hold their forte of excellence. what happened in olumpus could have happened any where. every company has a choice to manage or mis manage and olympus chose the latter. I dont believe it has exposed the japanese style of working negatively. but it has just exposed some one on the wrong side of values. if that is the style that has got japan this far and they are content with their version of creativity, i am not sure if we should meddle with it with an alternative theory.

Ramesh said...

@Sandhya - as always a brilliant insight. If it has worked, why meddle with it. Great point. Yes it has worked. But mostly in the past. These days it doesn't seem to work as much. Japanese society is itself in transition. The old deference to elders and seniority cannot continue for much longer. The old tycoons better wake up and change.

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