Climbing Mount Olympus – the story of lesser peaks

There's a saying in corporate governance – and in economics – that we settle for second best because having climbed the lesser peak, it's too difficult to go down and climb a higher one. Having got to the top of a smaller mountain, the view is good enough, so we stay put. Perhaps.

The events unfolding at Olympus Corp. in Japan are nothing short of stunning. It's too early to say with any certainty whether there was any malfeasance, but what facts are certain suggest that corporate governance in the company left something to be desired. A newly installed chief executive fired after 30 years with the company but only a few weeks in post would be bad enough. The company says it was a personal and cultural mismatch. "Michael C. Woodford has largely diverted from the rest of the management team in regard to the management direction and method, and it is now causing problems for decision making by the management team," it said. That doesn't chime with the Woodford having already brandished an auditor's report on television questioning the propriety and even legality of payments to advisers totalling two-thirds of a billion dollars. Had the board hoped that a British CEO would not be willing or able to look into advisory fees amounting to a third of the value of a takeover? That the advisers in question seem to have disappeared from the Caribbean tax haven they once occupied is one of the allegations that both the Serious Fraud Office in the UK and the US Federal Bureau of Investigations will now seek to examine. A fine mess. We might even call it a Greek tragedy, if the Greeks themselves hadn't been occupying that position in the eurozone mess.

In the corporate governance world, Japan is often seen as a counterpoint to the Anglo-American way of working. Japanese governance follows a "stakeholder" approach, in which shareholders are only one of a number of constituencies the board must take into account. Rapacious capitalism of the US and UK variety is thus held at bay. The "agency problem" that dominates worries in the large capital markets is supposed to play less of a role. Perhaps.

But in this case the disclosures from the company served only to confuse the issues, as in the October 19 news release that detailed but did not clarify the fee structure. Disclosure ought to involve understanding as well as facts. Whose "agency" – whose decision and choice – was involved in selecting the agents for the acquisitions? Whose "agency" agreed the sums involved, even if, as the company's statements declare, the transactions will eventually pay off.

So, a new CEO, then a new chairman ("president" in the terminology used at Olympus), a new auditor – and a new beginning? Perhaps.

They will have a mountain to climb to win back respect for a company that makes rather nice cameras. Reputation is more than customer satisfaction.

Source documents: The Olympus news headlines page contains links to the various documents issued. The October 19 news release is a four-page pdf file. The October 27 statement is a 10-page pdf.