Culture Clash, or Egregious Ethics?

When the news broke about ten days ago that Olympus -- the Japanese company best know for its digital cameras, although its medical equipment business is far more profitable -- was firing its British CEO, it seemed like a classic culture-clash story.

Indeed, that's how it was presented. As the New York Times' Hiroko Tabuchi reported (full story, here), Olympus' chairman said, "We hoped that he could do tings that would be difficult for a Japanese executive to do... But he was unable to understand that we need to reflect a management style we have built up in our 92 years as a company, as well as Japanese culture."

Isn't that a fascinating comment? In other words, Olympus wanted a CEO who was un-Japanese, but not too un-Japanese. How's that for a recipe for failure? (Michael Woodford, the ousted CEO, was British, but had spent 30 years with Olympus, so you'd think he would have a pretty good handle on Japanese culture.)

Share prices in Olympus dropped dramatically on the news of the CEO's demotion.

They declined further two days later, when Mr. Woodford claimed that he was forced out because he had presented the Olympus chairman with evidence of fraud. (Article by Hiroko Tabuchi here)

As further explained a few days later by the Times' Wayne Arnold and John Foley (full story, here), Mr. Woodford said that "he was forced out after pointing out governance problems surrounding overseas acquisitions, in particular a $1.9 billion deal for Gyrus, a British medical equipment firm. He accuses [sic] the board of violating British law against paying a buyer for an acquisition, false accounting and breach of fiduciary duties."

So now it appears not to be a cultural issue at all, but an ethical and legal one. Were Japanese laws allegedly violated as well? Or only British laws?

The heart of the conflict, as reported yesterday by the Times' DealBook reporter, Ben Protess, is "a mysterious $687 million payout" made by Olympus to two formerly-unknown Japanese bankers (full story, here). That payout was originally described as a "fee" for advising Olympus on the 2008 Gyrus takeover. But, as Protess notes, that payout is "more than 30 times the norm on Wall Street" -- and Wall Street is not generally known for underpaying itself.

Protess also reported that "the FBI is now investigating the $687 million payment... The focus of the investigation is not yet clear, and a spokesman for the FBI ...declined to comment."

So now there are American laws that may have been broken, too?

Protess quotes Jeffrey Manns, an associate professor at George Washington University Law School: "This is such an extraordinary deviation from normal fees.... No one would have entered into this transaction if they were showing good business judgment."

Olympus, of course, insists that the payment was "appropriate".

It's far too early to know whether this is primarily a cultural clash or an ethical (and legal) breach; the mess may well end up having elements of both, and those elements may be closely intertwined. Either way, there's an ugly smell hanging over a once-admired firm.