page_title: Olympus scandal
section_title: Background
hierarchical_section_title: Olympus scandal / Background
caption_attribution_description: English: Olympus head office(Hatagaya,shibuya,Tokyo) 日本語: 渋谷区幡ヶ谷にあるオリンパス本社
context_page_description: The Olympus scandal was precipitated on 14 October 2011 when British-born Michael Woodford was suddenly ousted as chief executive of international optical equipment manufacturer Olympus Corporation. He had been company president for six months, and two weeks prior had been promoted to chief executive officer, when he exposed "one of the biggest and longest-running loss-hiding arrangements in Japanese corporate history", according to The Wall Street Journal. Tsuyoshi Kikukawa, the board chairman, who had appointed Woodford to these positions, again assumed the title of CEO and president. The incident raised concern about the endurance of tobashi schemes, and the strength of corporate governance in Japan.
  Apparently irregular payments for acquisitions had resulted in very significant asset impairment charges in the company's accounts, and this was exposed in an article in the Japanese financial magazine FACTA and had come to Woodford's attention. Japanese press speculated on a connection to Yakuza. Olympus defended itself against allegations of impropriety.
context_section_description: Olympus Corporation, a major Japanese manufacturer of optical imaging, laboratory and medical equipment listed on the Tokyo Stock Exchange had, according to its accounts for the year ended 31 March 2011, consolidated net sales of ¥847.1 billion (US$10.6 billion) in the year, and total shareholders' equity of ¥262.5 billion (US$3.3 billion). The group employs close to 40,000 people around the world. Its assets of ¥1 trillion (US$13.3 billion) as at 31 March 2011 included ¥175.5 billion (US$2.2 billion) of goodwill, an intangible asset. Under the leadership of Tsuyoshi Kikukawa, who became president in 2001, the company's revenues increased from ¥467 billion to ¥847 billion while the profits were a relatively constant ¥35 billion.
  During the 1980s, many Japanese corporations relied on investments to bolster dwindling profits, particularly in its exports which had been eroded by a strong yen. Toshiro Shimoyama, Olympus president from 1984 to 1993, admitted to the Nikkei industrial daily newspaper in 1986: "When the main business is struggling, we need to earn through zaitech" (meaning financial engineering). Olympus invested in financial derivatives and other risky investments to boost profits. However, Shimoyama said he "does not remember" any attempt to conceal losses (tobashi) during his tenure as president: "As president it wasn't the case where all financial reports would come to me, so I have no memory. During that time Masatoshi Kishimoto was the treasurer ... I wouldn't have heard financial details." Kishimoto, Olympus president from 1993 to 2001, in turn denied involvement in concealing losses, and instead suggested possible implication of Hideo Yamada, whom he said he supervised poorly.
  In 1991 Olympus had to take losses of ¥2.1 billion on the value of its investments after the investment bonanza ended. In June 1998, Olympus was subject of market rumours that it had suffered sizeable trading losses on derivatives which caused its shares to plunge by 11 per cent. The rumours were emphatically denied by Olympus, which subsequently announced record profits. In September 2011, Olympus announced that it had written off part of a ¥45 billion investment in emerging market bonds. The company further disclosed during its interim results in October 1999, that it had lost nearly ¥17 billion from interest rate and currency swaps. The company also reported that it had lost ¥2.9 billion in the Princeton Economics International Ponzi scheme. According to Bloomberg, the annual report of Olympus Corporation for the year ended 31 March 2010 showed a ¥15.5 billion ($201 million) prior period adjustment for "loss related to the purchase of preference shares from [an unnamed] third party"; goodwill on its balance sheet also increased by ¥13.5 billion yen to account for the purchase. BusinessWeek noted that ratio of a company's debt relative to its equity ranks Olympus among the top 2 percent most highly geared of Japan's largest companies, while The Financial Times commented that its capital base – an equity ratio in 2011 of below 14 percent – is the weakest among its peer group. Olympus is the only Nikkei 225 constituent whose intangible assets – principally goodwill of around ¥168 billion – exceeds net assets (¥151 billion).
caption: Building at Olympus head office in Tokyo
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