Assignment 3

Peter Njovu

Graduate School of Business, The University of Zambia

ESB 5011: Business Ethics in a Global Environment

Dr Fatima

October 9th, 2022.

 Introduction

The major goal of the author is to compile information on Olympus, a Japanese company

known for its cameras and image technology. To accomplish this, the article will first discuss whether

the $17.3 million fine imposed on Olympus was adequate. It will also clarify why Olympus allowed

an internal ethics hotline to operate. The third section of the essay will examine the idea of due

diligence from the perspectives of two different cultures: Japanese and American. An evaluation of

this case's impact on the stakeholder will conclude the essay.

Sufficiency of Olympus' $17.3 Million Fine

Two elements should be thoroughly looked at in order to assess the sufficiency of the $17.3

million fine: the allegation and the judgment rendered after taking into account nearly all of the

relevant circumstances.

The accusations

At the point when Japanese organizations utilized Zaiteku, a kind of speculative venture, to

reinforce the declining yen-dollar exchange rate in the mid-1980s, the Olympus embarrassment

started out. While initially successful, Olympus started to experience enormous losses that finally

reached $2.6 billion (Elam, Madrigal, & Jackson, 2014).

With an end goal to turn around their financial situation, Olympus continued making risky

investments. Tragically, that never occurred, and they rather got back to security hypothesis and

putting resources into new companies, including Gyrus, which drove Woodford to uncover data about

the organization and its leaders on a $687 million arrangement that was concealed as warning

administrations for the obtaining of Axam Speculations, an organization whose industry didn't have

anything to do with Olympus' essential business. Furthermore, the Tokyo Stock Trade unveiled that

the normal instructing charges made up 1% concerning the large numbers that Olympus executives

supposedly paid out. Inadequate corporate governance in Japanese firms was also exposed by the

Olympus incident. Japan's accounting regulations allowed organizations to register assets at cost

rather than market value. Since Olympus had as a matter of fact illegally covered the majority of their
losses by the time the new accounting standards allowed businesses to adjust investments to market

value. Olympus utilized a system known as Tobashi to cover its losses by selling lost investments at a

loss to front firms like Axes America (Slodkowski, 2012). The fact that the shell firms weren't

compelled to merge their operations with Olympus since they were off-balance-sheet entities allowed

the fraud to go unnoticed for so long. According to Elam et al. (2014) "The plan was to phase out the

losses, either by more investments or through overpriced acquisitions, with the extra cost of the

acquisitions going to the off-balance-sheet-entities to make them whole". This was achieved by

maintaining the shell firms as expensive assets on Olympus' balance sheet; these investments were

then written down to provide Olympus with a precise computation.

Analysis of Judgment

Moral sensitivity, moral judgment, moral motivation, and moral character are the four parts of

moral growth (Elam et al., 2014). By disputing Woodford's claims, Olympus' management showed

moral callousness and a disregard for their moral obligations to society. The management further

chose to carry on with their deceptive practices by blaming Woodford for inflating the advisory

amount they paid Gyrus. Due to their oversight of Olympus' whistleblowing channel, which forbade

anonymous tips and put Woodford's safety in danger, the executive board even fired Woodford for

raising concerns about the company. Twelve out of fifteen Olympus executives favored Kikukawa's

game-plan and battled for Woodford's expulsion, showing an absence of moral fiber and uprightness.

The Olympus leaders won't restore Woodford as President regardless of whether the question goes to

preliminary. Leaders at Olympus were driven by the intuition to safeguard their own advantages to the

detriment of different stakeholders.

Criminal Law (n.d.), claims that punishment serves five major purposes: restitution, deterrence,

immobilization, rehabilitation, and retribution. By making sure that the offender receives justice

it deters the offended people from taking revenge. By safeguarding the defendant, this maintains faith

in the country's judicial system. The general public and others who were impacted by the Olympus

case might feel driven to punish the accused individuals on their own because they don't think justice

was done in that case. Contrarily, the idea of restitution requires the liable to pay the offended party a
financial repayment equivalent to the misfortunes and damage they have endured. The charged is

currently restricted from committing a comparable offense later on. A $17 million fine for a $2 billion

wrongdoing doesn't send the right message to other likely guilty parties; the financial backers'

misfortunes are just covered by just 12% of the fine required against the Olympus authorities. Justice

likewise aims to forestall the guilty or the overall population from perpetrating wrongdoings later on.

Bernard Ebbers, who created financial reports to cover a $1.7 billion misfortune, was allowed a 25-

year jail sentence (Elam et al., 2014). The accused and the general public might feel that the Olympus

executives got away with it in this instance and that justice wasn't done; as a result, the stakeholders

or the general public might seek retaliation.

In any case, in spite of the way that Olympus authorities' direct warrant unforgiving discipline

under the law , it can't be questioned that the organization had a lot good overall workers. Olympus'

stock price fell 41% in seven days because of the occasions paving the way to the preliminary, and the

business was delisted from the Tokyo Stock Exchange. Any business with a harmed standing can't

contend, and the association was fined for its reputational harm. A buy-out or rebranding may be

necessary for Olympus before their economic performance improves in order for the company to

become sustainable and profitable again (Slodkowski, 2012). Additional sanctions will only harm

innocent employees who were not complicit in or even aware of the fraudulent activities of their

superiors. In fact, Kikukawa fired Woodford from his position, and he was criticized for his behavior

on the business' website. Moreover, withdrawing Olympus from the market would be unfair to the

shareholders if some investment money were taken from employee stock options or benefit accounts

(Elam et al., 2014).

Authorization by Olympus to run an Internal Ethics Hotline.

Whistle-blower hotlines, in Alvero's opinion (2020), are the best means of identifying and

combating commercial fraud. The efficacy of the organization's compliance and ethical initiatives are

ensured through whistle-blower hotlines that function well. "Most financial statement frauds continue

around 3-5 years before someone blows the whistle, the company makes a mistake, or it all comes

crashing down when the house of cards that formed the fraud collapses," claims (Kastiel, 2014). The
Japanese culture at Olympus kept fraudulent transactions camouflaged for over a decade despite the

fact that this is the norm. Albeit the association had a hotline for reporting fraud, it was overseen by

Yamada and Mori, the association's brains. Apart from the fact that the supervisors of the

whistleblowing hotline were the ones who orchestrated the scam, the whistleblowing hotline at

Olympus acknowledged no mysterious tips, making it futile.

The Olympus whistleblowing was conducted internally for one major reason: to conceal the

organization's losses. The Japanese culture places a higher value on trust than due diligence, so they

make certain that relationships are built on trust in order to protect their community. In the case of

Olympus, solidarity was paramount, as evidenced by the chairperson's bashing of Woodford on the

company's website. Kikukawa thought Woodford's ethical move of blowing the whistle and

questioning executives about some suspicious transactions was abhorrent and unforgivable. Kikukawa

also accused Woodford of plotting to consolidate power and force Kikukawa to resign. Kikukawa, in

his opinion, was not admitting any wrongdoing in the firm's conduct or accounting principles because

he was adamant that whatever course of action Olympus took was to correct their statement of

financial position (Kastiel, 2014).

Internally, the executives used the Olympus hotline to compromise representatives who

revealed unscrupulous or inappropriate conduct by the organization. The Olympus hotline didn't take

unknown tips because doing so would have allowed for retaliation; as a result, when Woodford

exposed Olympus, 12 out of 15 board members agreed with Kikukawa that Woodford ought to be

fired because he had betrayed the trust placed in him to maintain Olympus' management style and

status quo. As a result, the reason Woodford was fired was because he was unable to appreciate how

Olympus had operated over the preceding 92 years. Due to the fact that the platform was not

anonymous, staff members would be deterred from viewing or using the facility out of fear of

retaliation, including being fired, receiving a constructive discharge, losing opportunities for career

advancement, or being called a snitch (Kastiel, 2014). For this reason, Woodford was very brave for

coming forward and incriminating himself against Olympus. In order to keep control over the

information being reported, the frequency of reporting, and the source of the reports, Olympus
decided not outsource the management of their hotline out of fear of being stigmatized. There were

some strict traditions and conventions in existence in Olympus that promoted a one-man system, such

as shareholders threatening to challenge and dispute stakeholder meetings unless they were paid for

their quiet. Hence, extortion and similar tactics were used to set the tone at the top. Employees at

Olympus felt frightened by management because corporate governance, ethical behavior, and

compliance issues were not upheld. The absence of an open-door policy made matters worse when

Woodford was ordered to mind his own business.

Niewer (2015) claims that "the environment now appears to contain widespread fraud,

negligence, misuse of power, and so forth." Several studies have found that whereas 62 percent of

respondents are confident in their company's top leadership, 40% of respondents think that their

organizations have a weak ethical culture. 65% of those who saw misconduct reported it, but a

concerning 20% of them experienced retaliation for doing so. Over 30% of individuals surveyed

claimed that their bosses did not act in an ethical manner. Additionally, almost 15% of workers felt

under pressure to violate their moral principles in order to fulfil their duties. The effectiveness of a

company's internal compliance and reporting processes, as well as how well they are conveyed to

employees, can have a big impact on whether a whistle-blower reports internally first or approaches a

regulator, such the SEC (Kastiel, 2014)

Due Diligence in Japanese and American Cultures

Japanese culture is rich in rituals and traditions. Their definition of a sufficient amount is based

on mutual respect, harmony, and agreement. Japanese people generally assume that because they are

trusted, everyone will make the right choices. However, a peculiarity in the Japanese corporate

governance structure emerged in the 1990s as a result of aggressive deal-making by Japanese

businesses. As a result, if they weren't bought off, several minority shareholders vowed to dispute and

contest stockholder meetings. As a result of this extortion, a culture where management was seen as

impervious to criticism and their actions were not questioned at stockholder meetings emerged. In

contrast to how due diligence is viewed in the American context, the meaning of due diligence in

Japan is somewhat limited. Due diligence, according to Warter (2015), is a thorough evaluation of a
business carried out by a prospective buyer, largely to ascertain its assets and liabilities and to

evaluate its economic prospects. So, a typical due diligence procedure might start with a commercial

due diligence, then move on to an operational due diligence, a legal review, an accounting compliance

check, and then a financial due diligence.

A history of Japanese presidents who were aware of the situation at Olympus but did nothing to

try to change (Mintz, 2012). On the other side, Woodford was a foreigner who didn't know how

Olympus worked and was accused by Kikukawa of not knowing how things were done at Olympus.

Woodford intended to alter the autocratic leadership and bureaucracy management style, which

Kikukawa and others who backed him did not like as shown by the fact that he was fired after

exposing Olympus. This is a blatant example of how cultural disparities played a role in Olympus'

demise.

According to Warter & Warter (2015). A diagnostic procedure called "Cultural Due Diligence

(CDD) is done to establish the degree of cultural alignment or compatibility between organizations

that are parties to a merger or acquisition."  As a result, it makes it possible for businesses to spot

potential hot spots for cultural clashes and create sensible integration plans to handle organizational

culture differences. A culture alignment plan is created by CDD after an evaluation of the

organization's culture, risk, and people. Olympus failed to consider the difficulties that would follow

from their cultural differences, leadership styles, and desire to keep things the same at Olympus when

they picked Woodford as CEO. Furthermore, according to Merchant (2018), Japanese employees are

required to request permission from their superiors and to keep them aware of their activities. Only

the superior should receive any issues or concerns. In contrast, experimentation with novel approaches

to problem-solving is valued in American culture. A system of structured individuality is also

generally followed in American companies.

The American culture encourages both teamwork and individuality, while the Japanese culture

is more concerned with the group and power structure. This is another way that the two cultures differ

from one another. When Woodford met an irate Kikutawa who urged him to keep to himself and

observe the rules, this cultural clash was on show. In response to his whistle-blowing, Woodford was
later fired, but his board position was left unaffected. Warter & Warter (2015) points out that cultural

due diligence is a term borrowed from the financial due diligence that is part of any merger or

acquisition, when the acquiring firm pores over the books and balance sheets of the company it is

acquiring to assess its financial health. Businesses that opt to grow through a merger or acquisition of

another company should first methodically address the cultural due diligence stage of the process.

Their leaders in particular need to focus on the major cultural issues that have an impact on the

operations and strategies of the acquired firm (Warter & Warter, 2015).

Functions, norms, attitudes and mental processes, behaviour, structures, and symbols are

examples. The merger of two companies necessitates an understanding of opposing cultures as well as

individual differences (Warter & Warter, 2015).

Significantly Impacted Stakeholders other than Shareholders

The initial and, in some situations, the only stakeholders identified are shareholders most of the

time. Those who are impacted by or interested in a company's operations are referred to as

stakeholders. Stakeholders have a responsibility to articulate their goals for corporate performance,

evaluate how corporate decisions will affect those goals and interests, and take appropriate action

based on their assessments, experiences, and behaviors [CITATION Sta16 l 1033]. The following

stakeholders were recognized by the author and listed in no particular order in the current situation:

Top Executives and Board Members, Trade Unions, Regulators, Employees, External Audit Firms,

Customers, and the Community, as well as Banks and the Tokyo Stock Exchange.

Top Executives and Board Members

Board members and senior Olympus executives—collectively referred to as management—

were among the parties involved in the dispute. Reports state that Olympus executives or management

decided to halt the transfer of funds through two significant initiatives involving the acquisition of

three small Japanese companies. They also reportedly decided to write off the remaining losses using

the $687 million in fees from the Gyrus acquisition. Additionally, it has been stated that on September
25, 2012, all three formerly employed Olympus executives admitted guilt. This indicates how the case

affected them.

Trade Unions

The Olympus trial had a negative impact on the company's financial performance. Assuming

that some union members were laid off or lost their jobs as a result of the decline in financial

performance, this must have spurred workers' trade unions to defend the interests of their members.

Regulators

The corporate governance and due diligence frameworks in Japan have come under fire

because to the executive actions made by Olympus. Investors won't want to put money into a nation

or economy where there are inadequate regulations since it will make them feel uneasy about their

investment. The Olympus management system also aided in authoritarian rule, jeopardizing internal

checks and balances and providing a haven for criminals. The judgment against the Olympus

executives also showed faults in the legal system, failing the populace and the harmed shareholders,

which contributes to a decline in public confidence in the system.

Employees

The Olympus incident must have had a number of effects on employees. Employees first select

a company over another based on the importance they accord to their employment in proportion to

their own self-interest. The reputation that comes with working for Olympus as an individual is

occasionally valued by employees. This sense of community was diminished by Olympus' damaged

reputation. Second, even if they were not involved in the decisions that led to fraudulent transactions,

certain members of society might fail to distinguish between an employee's individuality and their

work and hold them to the same standard of culpability as their employer. Thirdly, other than

Woodford, other people have lost their employment as a result of Olympus's poor financial

performance, which has a negative financial, social, mental, and economic impacts.

Audit Firms
 Although KPMG Azsa disagreed with Olympus on the Gyrus acquisition, it has been claimed

that KPMG Azsa approved the financial accounts in this instance in March 2009. Additionally, it has

been stated that Olympus hired Ernst & Young Shining to serve as auditors. When they were hired,

they had to ask the prior audit company if they had a disagreement with Olympus, which revealed that

KPMG had conflicts with Olympus on a number of times over fraudulent activity when it held that

position. The incident might have damaged the bonds between the audit firms.

Businesses should protect themselves from the hazards of cooperating with a problematic

client (Deppe, 1992). Therefore, CPAs should consider the potential or actual business risks that

relationships with clients whose reputations are dubious may transfer to the company before accepting

any customer. There are many users of financial statements, all of whom are interested in judging the

overall health of the business based on the information provided in financial statements. If these

financial statements are made in a deceptive manner and are supported by a CPA, the CPA runs the

danger of being held liable for tricking investors into investing in a business whose dealings are

dubious.

Deppe (1992) claims that a CPA was sued for $200 million because investors who relied on

their financial statements were duped and lost $13 million. Extreme caution should be taken when

working with customers who might damage the CPA's reputation as a result of their relationship with

the company. Clients having a history of bankruptcy, litigation, lawsuits, problems with regulators,

unfavorable publicity, etc. should be closely examined and given a higher risk rating than clients

without any of the aforementioned issues. Both PWC and EY worked for Olympus, thus they could be

exposed to the risk of association. In addition, PWC did not exercise due diligence when auditing

Olympus and could face legal action from investors.

Customers, and the Community

Prior to the crisis, Olympus provided cameras and imaging technology to the community. The

legal actions taken against Olympus had an effect on their output, financial performance, and

engagement in CSR initiatives. "Clients must have a high level of trust in the businesses from which
they buy goods and services, or else they will look to buy those goods and services from businesses

they believe they can trust" (Stanwick & Stanwick, 2016). Society expects a company to have ethical

obligations that go above and beyond simply adhering to the rules established by society. The firm's

ethical obligations include things like (1) making sure the firm performs in a way that meets or

exceeds expectations of both social and ethical norms, (2) being adaptable to new or evolving ethical

and moral norms within society, (3) making sure that ethical norms are not disregarded or

compromised in order for the firm to achieve its goal, and (4) acting ethically (Stanwick & Stanwick,

2016).

Banks

Bank loans were used to finance some of Olympus' investments. The banks' evaluation of

window-dressed financial statements, which were also ignorantly approved by less scrupulous CPAs,

may have resulted in their credit assessments being deceived. KPMG's request for Olympus to

confirm the collateral used to secure bank loans was also rejected. The numerous lawsuits brought

against Olympus also had a detrimental effect on its financial performance. Olympus wouldn't be able

to repay the loans they got as a result, which would cause banks to classify the debts as non-

performing loans on their books.

Tokyo Stock Exchange

The Tokyo Stock Exchange makes money from the fees it charges for trading shares. The TSE

received a sizable portion of its earnings from Olympus, a financial powerhouse that had been

operating for more than 90 years. Olympus stock was barely trading at 16% of its prior high five

months after the scandal emerged in July 2011. The company was in danger of having its shares

delisted from the Tokyo Exchange (Elam et al, 2014)

Conclusion

Because it brings up moral concerns in business, finance, and accounting, the Olympus case is

an intriguing one to look at. First, we evaluated whether the $17.3 million fine was adequate to punish

Olympus for the charge made against it. We came to the conclusion that even while the fine may not
seem to be enough to avoid similar instances in the future, the harm to the organization's reputation

will be much more than the fine. Second, we talked about how Olympus' internal whistleblowing

procedure allowed fraudulent transactions to go unreported for more than ten years. Internal

whistleblowing was first created to hide huge financial losses that had accumulated over a decade.

Making decisions that are in the best interests of all stakeholders is something that

organizations, both private and public, should aim for. The management of these companies should

also be responsible for their acts, which means that they should be dependable and trustworthy in all

endeavours the organization conducts without harming others (both present and future).

It's true that mistakes may occasionally happen in an organization, but the only way a company

can keep growing is if they evaluate their options to see if they would cause harm. New endeavors

may become expensive if an organization is not sufficiently responsible in handling such operations.

From this fascinating case study of Olympus, the author has continued to learn about philosophical

ethics and corporate social responsibility in order to better comprehend ethical dilemmas in a global

setting.
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