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38 See Morgan & Burnsid, supra note 7, at 177.
ENGELBERG ESSAY GALLEYSFINAL
8/25/2016 11:36 AM
2016]
REIGNING IN A CULTURE OF FRAUD
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spheres of power.39 This lack of power separation essentially allowed
Kikukawa to act as both the President and Board Chairman of Olympus,
providing him with unlimited authority to make all personnel decisions, even
at the Board level.40 Kikukawa promoted only the most loyal employees to the
Board, essentially rendering the Board ineffective.41 The Board became
beholden to the CEO to such an extent, that an investigative report revealed the
Directors were merely “emasculated” company “yes-men.”42 All demands for
greater profits, regardless of feasibility, were met using any means necessary,
including the inflation of financial figures in a display of loyalty.43
When Kikukawa demanded greater profits, his inferiors were all too willing
to meet those targets by any means necessary.44 In a display of both loyalty
and social harmony, employees made a concerted effort to inflate financial
figures.45 Employees’ overriding instinct was to hide any and all mistakes
regardless of the costs.46 Company loyalty was so great that no one ever
bothered to blow the whistle or criticize the actions.47 Olympus fell victim to
groupthink.
After two decades of deceit, the Olympus scandal was discovered when
Michael Wood, Olympus’ first non-Japanese CEO, become a whistleblower.48
Wood became suspicious after witnessing an employee attempt to hide a
newspaper article that alleged Olympus had engaged in corporate
misconduct.49 Wood launched an internal investigation, and upon discovering
the fraudulent acts by former CEO and current Chairman of the Board,
Kikukawa, Wood demanded letters of resignation for all board members.50 The
following day, Kikukawa promptly retaliated by firing Wood.51 The Olympus
case demonstrates two major problems that Japanese corporate governance
regulations must address: (1) the consolidation of power into a single
individual, and (2) the feverous loyalty of subordinate employees.