A Compilation of the True Natures of Salarymen: Olympus Investigation Report

A Compilation of the True Natures of Salarymen: Olympus Investigation Report
Yomiuri Shimbun: サラリーマン根性の集大成…オリンパス調査報告
December 6, 2011

These are the main points from the December 6 report from the third party investigation of Olympus.

Enormous Operating Losses
Olympus had placed great importance on money managing strategy ever since 1985, when Tomoshirō Shimoyama was its president and the strengthening of the yen began cutting into its profits. Operating losses swelled when the Japanese economic bubble burst in 1990. In 1985, the operating budget became the sole responsibility of the Accounting Department’s Fundraising Group Leader Hideo Yamada, previously the full-time auditor; in 1987, Hisashi Mori, previously the vice president, became his subordinate.

Scheme to Separate the Company From Its Losses (aka Scheme To Make Losses “Fly Away”)
Beginning in April 2000, in order to make the company’s debt statements better match its prevailing market valuation, Messrs. Yamada and Mori devised a scheme to move financial assets from 1997-98, which included losses, into off-the-books accounts. This strategy to separate the company’s losses from its ledger was called a “flight” scheme. The accounts which were the receptacles for these losses (1) were financed by company money and used company money as collateral, and (2) bought toxic assets from the company. Receptacle funds were established in Europe, Singapore, and Japan.

Messrs. Yamada and Mori reported their actions to former president Masatomo Kishimoto, who agreed to them. His successor, Tsuyoshi Kikukawa, was informed by January 2000. The management of these massive debts was passed to him as part of his inheritance of the company, a so-called “secret top priority management problem”.

Loss Annulment Scheme
Olympus still had to find money to secretly finance and eventually repay these loans. Messrs. Yamada and Mori created a money stream for these credit/debit transactions by having Olympus (1) buy companies the secret funds had purchased cheaply for high prices and (2) pay the funds large commission fees for large-scale purchases. They thought the gaps between the purchase prices and the actual values of the watered assets would accumulate with each transaction and pay off the hidden debts in 10-20 years.

To begin with, Olympus raised capital to buy Altis and two other domestic companies, for which it paid a high price of ¥732 million in the first quarter of 2008. Some of this money was funneled to the accounts for the “fly away” schemes to pay off debts. But the companies were audited and revaluated at ¥557 million in the first quarter of 2009.

Next, after Olympus bought English medical equipment manufacturer Gyrus, it paid stock options in that company to an American investment advice company as a contingent fee; in June 2008, the American company transferred $24 million to an account in the Cayman Islands. That November, that corporation, following a secret agreement it had made with Mr. Mori, requested that money back. Mr. Mori told the company that “the corporation in the Caymans seems to need cash because of the American financial shock.” Mr. Mori inflated the amount of the company’s request to $724 million, and Olympus ultimately paid $620 million.

The total of the losses that were put into hiding was ¥96 billion in 1999-2000 and had grown to ¥117.7 billion in 2003. After that, ¥71.6 billion was sent to the “fly away” funds, and ¥63.2 billion more was sent during the Gyrus affair, for a total of ¥134.8 billion assigned to covering scheme expenses.

Messrs. Kishimoto and Kikukawa regularly received reports from Messrs. Yamada and Mori about the loss annulment schemes and assented to their activities.

The Cause
Olympus concentrated power over its operating budget to a small, elite group which totally cut off participation from any other part of the company. This group was led by a single person, the most senior in its ranks. Mr. Yamada and company thought of the asset flight scheme as a way to get around changes in accounting standards. Their scheme violated the Financial Instruments and Exchange Act and is forbidden for listed companies. Its central management was corrupt, and the company’s outlying divisions were also polluted; this affair should be considered a compilation of the true natures of salarymen. There were many yes-men among the directors, and external auditors were unable to complete their responsibilities.
















(2011年12月6日20時42分 読売新聞)

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