I have a very clear memory of this story because it became public 15 years ago, in 2011, and I remember watching the news and seeing Michael Woodford, the whistleblower, being mobbed by the media in Tokyo after he had found out about and exposed a 20-year, $1.7 billion fraud at Olympus, the company where he had just been promoted to the CEO role.
And what I love about this story is that it gives us a great insight into Japanese corporate life, how saving face was, and maybe still is, prioritised over everything else.
This story has drama, strong characters and even the hint of organised crime in the form of the Yakuza.
The Rise of Olympus
Olympus was founded in Japan in 1919 with a simple ambition: to stop the country relying on imported optical equipment.
But from the beginning, the idea wasn’t just to copy what foreign companies were doing. As its founder, Takeshi Yamashita, put it: “Mere imitations of imported products wouldn’t suffice. We would need to create something truly original.”
And that became the basic philosophy of Olympus.
It started out making microscopes.
In 1950, it developed the world’s first camera that could photograph inside the human stomach, and at the same time, its consumer camera business was taking off, especially with the launch of the groundbreaking Pen camera. It was compact, high quality, yet affordable, and so it opened up photography to millions of people.
And by the time we get to the 1990s, Olympus, on the surface, was doing brilliantly. It was sold in more than 100 countries, had around two-thirds of the global endoscopy market and was a major name in cameras and scientific equipment. It employed around 10,000 people with revenues of about $1.5 billion.
But things weren’t going well in the Japanese economy.
For a bit of context, Japan’s economic bubble lasted for about five years in the late 1980s, fuelled by easy credit and low interest rates that sent stock and real estate prices soaring.
And as a result of the really low interest rates, Japanese companies like Olympus borrowed money cheaply and then invested in the booming stock and property markets.
But when the central bank stepped in and put up interest rates in 1989 to cool things down, the whole bubble burst, and Olympus was sitting on losses of around $700 million.
And because of the culture within Japanese corporations, Olympus didn’t own up to the losses. Instead, they started hiding them.
The Japanese Culture of Saving Face
So let’s just have a look at this corporate culture.
For decades, big Japanese companies were built around stability, loyalty and long-term employment. People joined a company, spent their entire career there and slowly worked their way up. So the people running these companies weren’t outsiders brought in to shake things up. They’d often been there for 30 years.
And Olympus, like most big Japanese corporations, had this very insular culture where loyalty and seniority were hugely important. Challenging your boss could be seen almost as an act of betrayal. You didn’t rock the boat.
And then you had this whole Japanese idea of saving face, or mentsu. It goes back centuries in Japanese culture, rooted in deeply held traditions of social harmony, or wa, and group honour.
In a society built on collectivism rather than individualism, public failure didn't just embarrass you—it brought shame onto your family, your peers, and your entire organization.
So in a corporate setting, admitting that you’d made a huge mistake could destroy your reputation as well as bring untold shame to your organisation.
And the corporate board structure, as well as the relationships with their main banks, also laid the foundations for scandals like the Olympus one.
Oftentimes, the banks that lent these corporations money would have a seat on the board, and companies and banks frequently owned shares in one another.
So as a result, companies were partly insulated from outside shareholders. As long as the loans were being repaid and everything looked fine on paper, combined with the fact that board members tended to defer to the chairman or president rather than challenge them, there wasn’t a huge amount of pressure to start digging around inside the business.
Making the Losses Disappear
In relation to Olympus, two of the central executives in this scheme were the internal auditor, Yamada, and executive vice president Mori.
Now, there were obviously a lot more outside brokers and bankers involved, but for the sake of not confusing you or me, I’m going to keep names to a minimum.
So Yamada and Mori, working together with bankers, came up with this elaborate system known in Japan as tobashi, which literally translates as “to fly away.”
And basically, that’s exactly what they were doing with the losses. Making them fly away.
To explain this in simple terms, let's say Olympus bought $100 million worth of particular shares before the bubble burst. The bubble bursts, the stock collapses, and those shares are now worth just $40 million.
Normally, a company has to admit that its $100 million investment is now only worth $40 million and take that $60 million loss. But instead, Olympus would transfer the shares to an outside fund or shell company for the original $100 million price tag.
Now, obviously, this outside fund didn’t actually have $100 million sitting around to buy the bad shares. So loans and other structures were arranged to finance it—structures that were ultimately supported by Olympus itself.
But because these funds were supposedly completely independent, they didn’t show up on Olympus’s balance sheet.
As far as anyone looking at Olympus’s accounts could see, the company bought an investment for $100 million and later sold it for $100 million. No loss recorded whatsoever.
But of course, there was a $60 million loss sitting on the balance sheet of those outside shell companies and offshore funds.
And the banks were helping them do this because they were making serious money. They were earning commissions of between 20% and 30% of the losses being moved off the balance sheet.
Yamada and Mori were doing all of this with the knowledge of the president of Olympus at the time.
But he’s not really the main character in this story because he’s long gone before the whole thing blows up.
The man who eventually becomes the face of the whole scandal is Tsuyoshi Kikukawa.
Enter Tsuyoshi Kikukawa
And Kikukawa is interesting because he wasn’t some old-fashioned executive.
Quite the opposite.
Kikukawa joined Olympus in 1964 as a graduate and earned a reputation as a bold innovator. He is credited with changing Olympus’s corporate culture by pushing the company in new directions.
He was heavily influenced by Western management style because he was sent by Olympus to the US, where he worked for several years.
And while there, Kikukawa foresaw the boom in digital photography, and it was he who championed Olympus’s entry into high-tech digital cameras, which was a huge win for the company.
So on the back of this success, Kikukawa moved up the ranks, eventually becoming CEO and chairman in the early 2000s.
And he’d been involved in the cover-up since the late 90s.
And despite all of his Western influences, Kikukawa was still very tied to the rigid hierarchies and traditions of Japanese corporate life.
As we move into the 2000s, Japanese accounting rules were tightening, regulators were paying much more attention to these offshore schemes, so Kikukawa, Mori and Yamada had to change tactics.
And they came up with a plan to use acquisitions to hide their losses in two ways.
The Acquisition Strategy
The first was to massively overpay for companies and record the difference between what the company was actually worth and what Olympus paid as something called goodwill.
Goodwill is a pretty standard accounting term. And the way it works is that when you buy a company, you're usually paying more than the value of its actual assets. Because you're also paying for things like its brand, its customers and the money you expect it to make in the future.
And that extra amount is called goodwill.
Now, the problem comes when you've paid all this money for a company and it turns out to be worth nowhere near what you expected. And when that happens, you may have to write off huge amounts of goodwill.
And there are some great examples of companies that made some really bad mergers or acquisitions and ended up doing exactly that.
Take AOL and Time Warner. Their merger was valued at around $165 billion. And just two years later, the combined company wrote down almost $100 billion in goodwill.
Another example is Hewlett-Packard, which paid $11 billion for Autonomy, the UK technology company founded by the late Mike Lynch. And there's a great story here which I will cover at some stage.
Now, of that $11 billion purchase price, $6.6 billion was recorded as goodwill. And just a year after the deal, HP wrote down $5.7 billion in goodwill and then sued Mike Lynch, claiming they were tricked.
So huge goodwill write-downs do happen. But of course, most companies don’t set out to use goodwill as a tactic to hide losses. This is what Olympus was now planning to do.
The second tactic that formed part of Olympus's acquisition plan was to pay huge advisory fees on these acquisitions, and much of that money would then find its way back to Olympus and would be used to pay down the hidden losses.
And the scheme was put into action between 2006 and 2008, when Olympus spent $800 million buying three businesses involved in things like recycling, food containers and mail-order cosmetics.
I mean, these had virtually nothing to do with Olympus’s core business.
They were presented as diversification, but all three were connected to offshore funds linked to people who had previously helped Olympus hide its losses.
And within two years of buying these three companies, Olympus had written off around $586 million, or 76% of what it had paid for them, using the goodwill tactic.
And then we can see the huge advisory fee tactic in 2008, when Olympus bought Gyrus, a British medical-device company, for $2.2 billion.
Now, unlike those other three companies, the Gyrus acquisition actually made sense because it produced surgical equipment, so it fitted perfectly well with Olympus’s medical business.
But Olympus paid $687 million to advisors involved in the deal.
That’s nearly a third of the entire purchase price and around 30 times what you’d normally expect to pay in advisory fees on a deal of that size.
Now, of course, the advisors didn’t pocket the $687 million, but they did earn about $45 million for helping facilitate what is essentially fraud, and the remaining $642 million was circulated back into the offshore funds holding Olympus’s losses.
And my first thought is, how did this even get past the board?
The very fact that the Olympus board didn’t ask any questions about the three obscure acquisitions, with their huge goodwill write-downs, or about massive advisory fees for the Gyrus deal, gives you a very good idea of how passive and pliant the board was.
But then what about their external auditors?
Well, KPMG Japan did challenge the company and were demanding answers.
So Olympus got rid of them in 2009, switched auditors to Ernst & Young, who also raised questions about the payments but ultimately signed off on the accounts after receiving reassurances from management.
Assurances my ass.
Anyway, by early 2011, after almost 20 years, the offshore funds that had been holding Olympus’s toxic investments were finally wound down and the old losses had effectively disappeared into Olympus’s accounts.
Mission accomplished.
Except, enter stage right, Michael Woodford.
Enter Michael Woodford
Woodford was from a working-class background, born in Liverpool in 1960. He joined Olympus’s British medical equipment business when he was just 20, starting out as a salesman.
He’s blunt, down to earth and a very good operator.
By 29, he’s running the British operation. He’s promoted to head the European business, which at the time was under pressure. He restructures it, cuts costs, profits rise by almost 50%.
He is very much the rising star within the company.
At the same time, the global business has been performing poorly since the 2008 financial crash. They need to shake up the business.
So in 2011, Kikukawa made Woodford president and COO, telling him: “I haven’t been able to change the company in the way it needs to be changed. I think you can.”
It’s a huge promotion. Woodford’s salary is now $8 million a year.
And initially, Woodford actually sees Kikukawa as an ally. He refers to him as his Japanese “umbrella”—the man who can protect him while he pushes through changes.
But then, in July 2011, Woodford gets an email telling him about an article in a small Japanese investigative magazine.
And the article is asking questions about those dodgy acquisitions.
Woodford goes into the office and asks his employees, "Has anyone read this article?"
They confirm that they had read it, but Kikukawa had told them not to talk about it with Woodford.
So Woodford arranges to meet with Kikukawa and Mori for lunch to discuss the allegations in the article.
And Woodford describes the lunch as follows:
“The table for the lunchtime meeting was set out with the "most wonderful selection of sushi, but in front of my place was a tuna sandwich. It wasn't just any tuna sandwich – it was a tuna sandwich that would have made British Rail in 1981 proud. It was that manky. The tuna sandwich was to tell me my place in life”.
In other words, it was a very obvious message. Don’t rock the boat.
But Woodford’s just not the type of person who backs down. When he asks Kikukawa about the allegations, he dismisses the article, calling it “sensationalist tabloid stuff.”
Woodford wasn’t convinced.
The Yakuza Allegations
And then a few days later, the same magazine publishes another article.
This one is even more alarming because it raises the possibility that some of the money may have passed through entities connected to the Yakuza, Japanese organised crime gangs.
Now, just to be clear, none of the subsequent prosecutions produced any evidence that Olympus had been working with organised crime.
But the idea that Olympus’s activities could have involved the Yakuza wasn’t completely far-fetched. During the 1990s and early 2000s, Japanese authorities suspected the Yakuza of moving into legitimate businesses because the government was cracking down on more traditional criminal activities.
And because Olympus’s money had been moved through so many offshore funds and intermediaries, from the outside, some of these payments looked like they could have been extortion or money laundering.
But for Woodford, the fact that these questions were even being raised about the potential involvement of the Yakuza made the situation much more serious and threatening.
It doesn’t stop him, though, because he really starts going after Kikukawa by writing a series of letters to him, which he then also sends to other directors and to the company’s auditors, specifically asking about the three obscure companies they bought for $800 million and the $687 million in advisory fees on the Gyrus acquisition.
In one of the letters, Woodford writes:
“It is truly extraordinary and frankly unbelievable that a Nikkei-listed company would send nearly $800 million to a Cayman Islands firm with no public profile, no known ownership, and no proper documentation. What law firm would even sign off on this? What the hell were we doing paying $800 million for these companies?”
Woodford arranges another meeting with Kikukawa, where he demands more authority over the board and tells Kikukawa he wants changes at the top of Olympus.
In other words, for Kikukawa to resign as CEO and chairman.
It turns into a shouting match, with Woodford giving Kikukawa an ultimatum.
“I will have to resign if I do not receive satisfactory explanations.”
Kikukawa understands that if Woodford resigns, then he’ll most likely go public with his accusations.
So instead, on September 30th, 2011, he promotes him to CEO, the first foreigner to run the company, and only the fourth at any major Japanese company. But Kikukawa remains as chairman.
Kikukawa very mistakenly believes that Woodford will now act like a typical Japanese insider, that he won’t want to expose the fraud and bring so-called shame to the company.
But of course, he couldn’t be more wrong.
The CEO Who Lasted Two Weeks
Woodford hires PwC to carry out an independent investigation, and on October 11, their report concludes that: “Improper conduct cannot be ruled out.”
I mean, that’s just accountancy-speak for fraud.
That same day, Woodford sends Kikukawa another letter.
“The honorable way forward,” he writes, “would be for you to face the consequences of what has taken place, which is a shameful saga by any stretch of the imagination. The current situation is untenable… The necessary course of action is for you to tender your resignation.”
He gets no reply.
Three days later, Woodford walks into an emergency board meeting expecting to discuss the PwC report.
Instead, Kikukawa reads out a prepared statement.
“The board meeting scheduled to discuss concerns relating to the company’s M&A activity is canceled. Instead, we have a new agenda. The first is to discuss the motion to dismiss Mr. Woodford as president and CEO. Mr. Woodford cannot speak because he is an interested party. All those in favor?”
Every director raises his hand.
And that’s it.
Just two weeks after making him CEO, Olympus fires Woodford.
The company publicly says it’s basically a cultural problem. Woodford doesn’t understand the consensus-driven way Olympus operates.
Kikukawa then tells employees that Woodford “created wedges,” and also accused Woodford of having “gathered a gang” to remove senior directors.
So Kikukawa and the entire Olympus publicity machine are out to blacken Woodford's name.
And remember, at this point, there are also allegations floating around about possible organised crime involvement.
Nothing has been proven, but Woodford is concerned enough that he leaves Japan on the first available flight to London.
As he said himself, “I find myself in a John Grisham novel”.
But before he left, he contacted the Financial Times and gave a lengthy interview disclosing everything he knew.
It was front-page news the following day.
And as soon as he lands in the UK, armed with the PwC report and internal documents, Woodford contacts the authorities in Britain, Japan and America, including the Serious Fraud Office and the FBI.
The Scandal Finally Explodes
Olympus shares lose more than 40% of their value, and the company is more or less forced to announce an independent investigation.
And on October 26, Kikukawa appears before the press, bows and announces that he’s resigning as chairman “to restore trust.”
But he still insists Olympus has “done nothing wrong.”
And he describes Woodford’s decision to go public as “unforgivable.”
His successor continues defending the Gyrus fees and the other acquisitions, before making the following comment at a press conference:
“If this secret information had not been leaked, there would have been no change in our corporate value.”
Well, as you can guess, that doesn't really fill investors, the media or the regulators with much confidence. The whole thing is unravelling.
So finally, on November 8th, 2011, less than a month after Woodford was fired, Olympus finally came clean.
The new president stands up at this incredibly tense press conference in Tokyo and admits that the acquisitions, the huge advisory fees, weren’t just business mistakes.
They were a cover for financial fraud.
And then he names names.
He says former chairman Kikukawa, the EVP Mori, and the internal auditor Yamada are directly responsible, but tries to soften the blow by saying they didn't enrich themselves, but rather, they acted “for the sake of the company.”
In 2013, Kikukawa, Yamada and Mori pleaded guilty to a $1.7 billion accounting fraud.
But the judge decides this was an inherited fraud, not something they invented. So they all get suspended jail sentences.
Kikukawa takes full responsibility. He bows his head in court and says, “The entire responsibility lies with me. There is no mistake.”
For a guy like Kikukawa, in Japan's shame-based culture, this public fall from grace was perhaps the harshest penalty.
He basically vanished from public view. One former acquaintance later said he was “deeply humiliated and saddened” and just spent his time quietly with family.
As for the company, Olympus gets a $7 million fine, but there was also a $92 million civil settlement with shareholders, while in a 2017 civil case, Kikukawa and five others were found to be personally liable for $529 million.
As for Woodford, he sued Olympus and in 2012 settled for a reported $16 million.
That same year, he wrote a book called Exposure: Inside the Olympus Scandal. I haven’t read it, but it gets great reviews.
And since the scandal, he’s run a very successful consultancy service that specialises in corporate governance and whistleblower protections.
Rebuilding Olympus
Meanwhile, Olympus had to rebuild.
No surprises that they got rid of the entire board. Sony came in with a $640 million lifeline for an 11% stake.
They had to cut 2,700 jobs and eventually sell off their legendary camera business, and they now focus purely on medical tech.
And that pivot has paid off, in a way.
I mean, they’re no longer one of the most important companies in Japan, but they survived the scandal, and by 2025, revenues hit $6.5 billion with profits of $1.5 billion.
Has Japanese Corporate Culture Really Changed?
Now, Olympus wasn't the only Japanese company where the top executives got up to all kinds of shenanigans.
Major institutions like Yamaichi Securities and Kanebo spent years fabricating financial reports to hide their own post-bubble losses.
And these scandals raise a much bigger question.
How many other companies had similar frauds going on?
Like, if it hadn't been for Woodford, Olympus probably would have gotten away with it, and there weren’t many Woodfords in Japanese corporations back then.
To be fair, as a result of the Olympus and other scandals, things have changed.
For example, the percentage of Japanese companies that have at least a third of their board made up of independent directors has gone from 6% in 2014 to 73% today.
Whistleblower protections have also strengthened.
So, on paper, Japanese companies have become more accountable.
But changing a corporate culture where employees are reluctant to question their bosses, that’s more deep-rooted and far more difficult to change.
And there have been numerous corporate scandals in Japan over the last decade, in Toshiba, Daihatsu and Bigmotor, that suggest this culture of fear, where employees are afraid to challenge their bosses or speak up when something is wrong, is still very much a problem.
And look, just to be clear, similar scandals happen in companies worldwide, and there are plenty of examples in nearly every country where whistleblowers were and continue to be treated very poorly.
But I do think there is something that is very particular to Japan, this idea of mentsu, saving face, avoiding embarrassment, which makes it that much harder to get people to call out something wrong when they see it.
The Man Who Refused to Look Away
Which brings me back to Michael Woodford.
You have to admire the man.
He could have said absolutely nothing.
Because remember, by the time he became COO and president and found out about the scheme, Olympus had already successfully whitewashed their losses.
He could have enjoyed his $8 million salary and his position at the top of one of Japan's most famous companies and left the whole thing alone.
But he didn't.
He saw something wrong and he called it out regardless of the ramifications.
That takes a lot of guts and integrity, so big, massive kudos to him.
And of course, I’m grateful to him because if he hadn't called it out, we wouldn’t have this great story.