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Friday, 21 October 2011

Olympus – Blind to Basic Reputational Truths

By Mark Hutcheon, Associate Partner, ReputationInc

The unusual sight of ‘CEO as whistleblower’ – was in full view this week as Michael Woodford blew the lid on a bizarre internal cover up at camera company Olympus.

While the story doesn’t have the corporate villainy or bad taste of News International’s Phone Hacking scandal, it once again reveals how cavalier companies are with their money, values and their reputation (arguably their most valuable asset).

Mr Woodford came out of the Olympus dark-room and revealed a very different picture of the Japanese firm after stumbling across a bewildering series of payments and decisions. Holding the company up to the light (and scrutiny) the CEO was shocked at a “catalogue of calamitous errors and exceptionally poor judgement…result[ing] in the shocking destruction of shareholder value of USD 1.3 billion.”

The scandal has turned attention on Japanese business - once heralded for its model corporations built on loyalty, technology and obedience.   Their consensus-driven corporate culture in this case breeds a fatal absence of challenge. Workers worshipped the chairman, knew their place and everything flowed from those reference points.

Until CEO Mr Woodford picked up his pen of truth to write the script for change. Culturally, he broke sacred laws of Japanese business – challenging your leader – in his case by insisting on transparency and honesty. Reputationally he got it right, just none of the company’s other directors could see the bigger picture.

Independent voices should be seen as a healthy feature of a modern corporation not least as they continually test whether the brand lives up to internal and external expectations.

Olympus wanted an outsider to shake up the company in the way a Japanese executive would not, but he clearly underestimated what this meant. Scrutiny of global business, mistrust of the markets and public expectations of transparency are normal operating conditions for businesses and Mr Woodford reflected this. In Japan, not so.  While the CEO learned the hard way you don’t challenge your leader in Japan, Olympus and possible Japanese industry has learnt that it cannot control the truth and therefore your reputation.

The bare facts are these: Olympus has destroyed $1.3bn – or about a quarter of its fast-dwindling market value – on a series of ill-explained and frankly incomprehensible deals and fee payments. Olympus ended up paying Axes and Axam, a related Caymans-incorporated entity a fee of $687m – 36 per cent of the value of the deal. These appear to have been overlooked or ignored in deference to the authority of its leaders.

The values of a corporation are the signposts and promises of how consumers can expect it to behave. Act in line with those values and you earn trust – a valuable commercial commodity. Go further and voluntarily reveal your genetic code if you want stakeholders to understand what the business stands for and believes in.
What is clear is management detached themselves from the values - the DNA of the business – encountering no challenge or oversight because no one dared question.   Rather than see the British CEO as a threat…Ironically he was their wake up call and the reality test Olympus needed as he represented the view of external stakeholders.

The Olympus affair appears to highlight the reputation risk in decision-making conducted solely through the internal lens of a company. If leadership and management cannot connect to a bigger picture, it will suffer reputationally and commercially.

Potentially, Japan’s country brand will emerge tarnished too.  As the FT put it “its manufacturing prowess is considerable, but the value created is often poorly husbanded by the practices of corporate Japan. Without better governance, these will continue both to stifle the dynamism of Japanese industry and to drag on growth.”

There are lessons for all companies in this story.  Companies have to accept change to their historical beliefs to stay relevant and reputable. The discreet, private corporation doesn’t exist anymore. Scrutiny is inevitable – in fact opening up the business to share its values, ideas and heritage are pathways to trust and enhanced reputation – not risk.

Olympus had its time for change and missed it. When the problem was revealed, it should have been managed in a discreet manner to minimise the reputational damage. Yet the board put personal loyalty above the interests of the company and its reputation, like its shares, are suffering (Olympus’s shares have fallen by 41 per cent since Friday’s board meeting).  On top of that trust in the governance or integrity of the brand is damaged all over the world.

A concluding thought for companies and comms directors: if you have a legacy issue – alleged or real surrounding your business – confront it early and seriously if you want to contain and close it.

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