Michael Woodford | Massive Japanese Corporate Cover-Up | Zer0es TV — Transcript

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1. 0:00i'm carson block and i'm here today for
2. 0:02a very special
3. 0:03short story with michael woodford
4. 0:06michael
5. 0:07is not a short seller and he's not a
6. 0:09professional investor
7. 0:10he's super interesting because he's a
8. 0:13brit
9. 0:14who went on to lead one of japan's
10. 0:16largest companies
11. 0:18olympus and then right after he got
12. 0:21named ceo he discovered that there was a
13. 0:24years-long
14. 0:25multi-billion dollar accounting fraud
15. 0:28and he blew the whistle on it michael i
16. 0:30i'm
17. 0:31really excited for you to tell your
18. 0:32story to our viewers thank you for being
19. 0:34here
20. 0:35my pleasure so what is your background
21. 0:37michael how did you get
22. 0:39to olympus and ultimately to be ceo
23. 0:42no it wasn't the classic ivy league
24. 0:45business school route at
25. 0:47all i was brought up uh in a a small
26. 0:50city called litchfield in the
27. 0:53in the midlands in the in england near
28. 0:55birmingham
29. 0:56and my father was a electorate
30. 0:58university middle class boy
31. 1:00but when i was seven my mother decided
32. 1:02to leave my dad
33. 1:04and went back to liverpool uh and that
34. 1:07was working class
35. 1:08liverpool a street as we call it
36. 1:12um but no bathroom no indoor toilet
37. 1:16i was a snooty little uh lord toffee
38. 1:19face
39. 1:20and was quickly in the first few days
40. 1:22knocked off my bike
41. 1:23as i came to realize that working class
42. 1:26liverpool was very different to middle
43. 1:28class litchfield i went to
44. 1:30school i adapted i grew to have a great
45. 1:33love and affection for
46. 1:35liverpool including its football team
47. 1:37dare i say but
48. 1:38i wasn't happy at home uh my
49. 1:41mother's second husband uh and me didn't
50. 1:44get on at all
51. 1:45and when i was just before my 17th
52. 1:48birthday i left
53. 1:49and uh left home went to london
54. 1:52where the streets i thought were all
55. 1:54covered in gold i got a job
56. 1:56with schweppes cadbury schweppes which
57. 1:58you'll know through all those gin and
58. 1:59tonics you drink carson
59. 2:00and there was a salesman selling fizzy
60. 2:03water and
61. 2:04schweppes was selling the uk distributor
62. 2:06for pepsi i realized i
63. 2:08i wasn't bad at selling and
64. 2:11purely luck i saw a newspaper
65. 2:13advertisement
66. 2:15for sales people selling olympus
67. 2:17endoscopes
68. 2:18and that sounded exciting and i applied
69. 2:21and
70. 2:22somehow got the job and uh i went from
71. 2:25the salesman and ended up as the ceo of
72. 2:27the company what it told me
73. 2:28it wasn't because i was so brilliant
74. 2:30it's it's luck opportunity
75. 2:32timing as so many things in life are
76. 2:35first backing up a little bit
77. 2:36coming from the background that you you
78. 2:38did in some ways in a lot of ways
79. 2:42you think that coming from working class
80. 2:44liverpool presents barriers to success
81. 2:47um you don't have access to networks etc
82. 2:49but
83. 2:50it can also instill a chip on one
84. 2:52shoulder i mean by the time you
85. 2:54left for london how do you think that
86. 2:57that had set you up for
87. 2:58future success it's a good question i
88. 3:01mean i think i could have gone two ways
89. 3:03but um
90. 3:04being comfortable middle class and then
91. 3:06having to have second hand school
92. 3:08blazers free school meals at lunchtime
93. 3:11laid down an insecurity which is
94. 3:13probably still with me to this day
95. 3:14although
96. 3:15i i think i'm more philosophical and
97. 3:17less driven than i was
98. 3:19uh as a youngster of 17 but it gave me a
99. 3:23drive to to prove my worth wanting to
100. 3:26prove to
101. 3:28my mother's second husband more than
102. 3:30anyone that i wasn't worthless and that
103. 3:32i
104. 3:32i could do things and and that together
105. 3:35with middle class to working class
106. 3:37made me driven and another word would be
107. 3:40insecure and it's a powerful motivator
108. 3:43i i often find driven people become very
109. 3:46self-consumed and aren't necessarily the
110. 3:49nicest people
111. 3:50but they can be very effective at
112. 3:52running companies because of their
113. 3:54their relentless drive your story
114. 3:56touches on so many fascinating topics
115. 3:59japanese style stock fraud which is
116. 4:02actually
117. 4:02different from what i normally encounter
118. 4:05real corporate intrigue thinking you're
119. 4:08an insider but finding out that you're
120. 4:10actually
121. 4:10on the outside yahoosa or japanese
122. 4:14organized crime in the markets
123. 4:16and on more normal level being the rare
124. 4:20foreigner running a japanese
125. 4:22a major japanese company and just how
126. 4:25open
127. 4:26japan really is to reforming corporate
128. 4:28governance
129. 4:29i think at this point we really should
130. 4:30talk about what exactly the fraud was
131. 4:33so my understanding is that olympus
132. 4:36like many other japanese corporates in
133. 4:39the 1980s
134. 4:40was speculating on stocks there was a
135. 4:43huge equity bubble
136. 4:45it burst massive losses
137. 4:48didn't want to own up to that and so
138. 4:51had failed to recognize these losses for
139. 4:54decades and then ultimately
140. 4:58decided to take the bath and
141. 5:01come up with an excuse for not having
142. 5:04the cash
143. 5:05by massively overpaying for some assets
144. 5:09and there were intermediaries who were
145. 5:12close confidants of kikukawa who
146. 5:15basically
147. 5:15facilitated this overpayment in order to
148. 5:18make the books balance
149. 5:20i mean that's the essence of it and
150. 5:22there was all different sort of
151. 5:23routines you know the linchenstein
152. 5:25routine but basically the
153. 5:27the three they they bought three mickey
154. 5:29mouse companies
155. 5:31and paid a billion dollars they paid uh
156. 5:34can you believe this 700 million dollars
157. 5:37for consultancy
158. 5:38fees to an unknown entity
159. 5:41in the cayman islands which also had an
160. 5:43office of one man
161. 5:45in lexington avenue new york and then
162. 5:47that 1.7 million would come back in
163. 5:50and be amortized that was you know
164. 5:52keeping it simple at what point when you
165. 5:54were a key med did you start
166. 5:55thinking though that you might actually
167. 5:58despite
168. 5:59all of the problems inherent in olympus
169. 6:02and japanese companies
170. 6:03that you might actually be able to run
171. 6:05the whole thing or get pretty close
172. 6:08i i never thought i i would become the
173. 6:11the president because
174. 6:12you know i wasn't a conformist you know
175. 6:15you know some of the japanese
176. 6:17used to tell me or you're very difficult
177. 6:19which was a polite word for
178. 6:21you know a huge pain in the in the back
179. 6:24i remember
180. 6:25some of the meetings um global meetings
181. 6:28where you'd have the
182. 6:30the managements of the the european the
183. 6:32british
184. 6:33and the american companies all meet in
185. 6:35tokyo
186. 6:37and i used to watch with horror as
187. 6:40and i have a huge respect for the
188. 6:42entrepreneurship and
189. 6:44and the the dynamo the united states is
190. 6:47but a lot of japanese companies had
191. 6:50not just olympus they were not good at
192. 6:53managing westerners so you had
193. 6:54westerners realize that this is lifetime
194. 6:57employment
195. 6:58and you're never going to get fired and
196. 7:00that that took off the edge to say the
197. 7:03very least
198. 7:04and one of the things i did when i
199. 7:05became president was change a lot of the
200. 7:07western management
201. 7:08as you would see somebody in a room you
202. 7:10would know that they
203. 7:12you know they they just weren't up to it
204. 7:14but i used to end up in very
205. 7:16heated discussions in japan often with
206. 7:18my american counterparts
207. 7:20and what surprised me i remember one
208. 7:22year my american colleagues turned up
209. 7:24and gave a presentation and they failed
210. 7:26to
211. 7:27deliver their targets the senior
212. 7:30japanese person in the room stood up and
213. 7:32said well thank you very much these have
214. 7:33been very difficult times
215. 7:35we really appreciate your efforts rather
216. 7:37than hold the person to account
217. 7:39it was that type of soft you know i mean
218. 7:43japanese don't generally i certainly had
219. 7:45confrontation with my board in
220. 7:47in a very extreme way but generally they
221. 7:50they will choose to avoid
222. 7:51particularly with with westerners so i i
223. 7:54was
224. 7:55too too difficult too hot to handle i
225. 7:58thought
226. 7:58i mean carson the issue of um
227. 8:01japanese companies is is something where
228. 8:04which shocked me
229. 8:05um and but then spending so much time in
230. 8:08japan i started to understand
231. 8:09they have an expression the nail that
232. 8:11stands up gets knocked down
233. 8:13and gosh that is so true it's not just a
234. 8:16cliche conforming in a sort of toady
235. 8:20like
236. 8:20manner to your boss not challenging the
237. 8:23hierarchy
238. 8:24and not threatening the hierarchy so if
239. 8:26you are brilliant you
240. 8:27have a place and you you need to know
241. 8:29your place in in the food chain
242. 8:31that doesn't encourage you know the very
243. 8:34best the very brightest to
244. 8:36to succeed and that was one of the the
245. 8:38frustrations i had when my
246. 8:40time at olympus came to such a sort of
247. 8:42abrupt ending because
248. 8:44it's not just women women um but youth
249. 8:47often the the the the lower down manager
250. 8:50was so much better than the director
251. 8:53so it isn't a culture which encourages
252. 8:55that
253. 8:56it's almost like a bureaucracy which
254. 8:58gets on the ruling class and i'm
255. 9:00generalizing there are
256. 9:01clearly exceptions to this rule um
257. 9:04and that and that is a weakness in
258. 9:05japanese companies and there's a lot of
259. 9:07rhetoric spoken now
260. 9:09japan you know hasn't got its you know
261. 9:12facebooks and you know teslas and
262. 9:16and all the other areas where you get
263. 9:18people who
264. 9:20go out and change the world and uh japan
265. 9:23had such a lead in you know post second
266. 9:26world war 1960s 1970s but
267. 9:29they throw through so much of that away
268. 9:31and if you can blend the
269. 9:33entrepreneurship and
270. 9:34and some of the basic management
271. 9:36disciplines fiscal disciplines
272. 9:38included you know some of some of
273. 9:40japan's companies could be
274. 9:42outstandingly successful although
275. 9:44hostile takeover
276. 9:46uh is is again another forbidden in
277. 9:48japan it's interesting
278. 9:50that that's the i guess the expression
279. 9:53that you used to describe a lot of japan
280. 9:55my time
281. 9:56in china i thought that multiple times
282. 9:59every day the nail that sticks up gets
283. 10:01hammered down
284. 10:02as an explanation for a lot of the
285. 10:04dysfunction that i saw
286. 10:06in all kinds of settings there in china
287. 10:09i mean they're both high power distance
288. 10:11cultures and i think that's
289. 10:13inherently one of the you know probably
290. 10:15the root cause
291. 10:17of that being the case it is and and
292. 10:20and that's also one of the reasons why
293. 10:22you know personally i think there's
294. 10:24there's many more olympuses out there
295. 10:27it's so much harder to get fraud exposed
296. 10:29in japan
297. 10:30you understand japan you've spent time
298. 10:33there you've worked at it you know
299. 10:35but so many western investors are so
300. 10:37splendidly
301. 10:38ignorant of the sort of societal
302. 10:40behaviors of japan
303. 10:42which lead to some of the situations
304. 10:44we've had but getting the
305. 10:46getting it out is so difficult getting
306. 10:48those stories out is
307. 10:50so difficult okay so at that point you
308. 10:52hadn't had
309. 10:54perspective firsthand perspective from a
310. 10:57foreigner
311. 10:58a guiding running a japanese company
312. 11:01about what it's like to be a foreigner
313. 11:02running a japanese company
314. 11:04i'd spend so much time in japan what i
315. 11:06would never have guessed
316. 11:08was you know how utterly
317. 11:12spineless and subservient the board of
318. 11:15directors
319. 11:16was i just would never believe it that
320. 11:19they would follow
321. 11:20kikukawa despite you know the company's
322. 11:23own president uh you know the president
323. 11:25of the company the ceo president saying
324. 11:27we need to bring in forensic accountants
325. 11:29they would all like lemmings follow him
326. 11:32and even when it blew up and became
327. 11:33public they continued to do that
328. 11:35and that side that i i knew japan was an
329. 11:38obedient
330. 11:39uh age-based you know system but
331. 11:43not to that degree so then it must have
332. 11:46been kiku kawasan's decision
333. 11:48alone to make you to promote you to
334. 11:51president ceo and ceo why
335. 11:55did he pick you now that
336. 11:58you know good question yeah given
337. 12:01everything you know now why
338. 12:02you he because he knew i would have
339. 12:05delivered
340. 12:05the results and um he would have been
341. 12:08seen as
342. 12:10a great innovator choosing this gaijin
343. 12:14and i would do my four years and
344. 12:17as president and then you know i'd go
345. 12:21back
346. 12:21and maybe eight years and then he would
347. 12:24appoint
348. 12:25the executive he would have appointed
349. 12:27would be mori sam
350. 12:28who was the sort of chief financial
351. 12:30officer equivalent
352. 12:32but he he was very unlucky because
353. 12:35this scandal only came out because
354. 12:37somebody
355. 12:38a whistleblower who i've grown to know
356. 12:40and like and respect but that time i
357. 12:42obviously didn't know who they were went
358. 12:44to a small magazine called factor
359. 12:46factor published it online and even you
360. 12:49could buy factor
361. 12:50in the bookstore newspaper store outside
362. 12:52olympus corporate headquarters
363. 12:54but none of the mainline media would
364. 12:56pick it up it's extraordinary that
365. 12:58somebody actually went
366. 13:00to factor that's just a freak in itself
367. 13:04and he was very unlucky that i i was
368. 13:06there to amplify
369. 13:07what the allegations which had been
370. 13:10reported in factor
371. 13:12so he was very unlucky otherwise his
372. 13:14plan would have been
373. 13:16perfect the olympus would have become
374. 13:17more and more profitable
375. 13:19this you know 1.7 billion us dollars
376. 13:22would have been a relatively small sum
377. 13:25for the the earnings capacity of a
378. 13:27corporation like
379. 13:28olympus with its near on 50 000
380. 13:30employees at that time
381. 13:32it would have been lost in history and
382. 13:33it would never have come out and we
383. 13:35wouldn't be sitting here
384. 13:36now having this conversation right so
385. 13:39you were
386. 13:39so you you first became presidency and
387. 13:42ceo
388. 13:43and then about six months later you were
389. 13:45named ceo
390. 13:46that's right and i think you were what
391. 13:49ceo for two weeks before you came across
392. 13:51the facta
393. 13:52article no no i i i became
394. 13:56president on the first of april 2011
395. 13:59before that i was
396. 14:00president-elect it followed also just a
397. 14:03few days
398. 14:04um from the horrible north east
399. 14:07earthquake in tohoku toku where this
400. 14:10tsunami
401. 14:11had come through and destabilized the
402. 14:14the nuclear power at fukushima
403. 14:16there was a surprise that i went back uh
404. 14:19other
405. 14:20heads of foreign businesses weren't in
406. 14:22the country but i went back to assume
407. 14:24the role
408. 14:25and they were the most special days of
409. 14:28my working life because
410. 14:29i saw the very best of japan where the
411. 14:31collective came together and we were
412. 14:33literally night and day weren't worried
413. 14:35about money or profits
414. 14:37it was just to make sure that we could
415. 14:38still provide service and infrastructure
416. 14:41support for all these clinicians using
417. 14:43our safety critical life-saving
418. 14:45equipment
419. 14:46we had those weeks in june the factor
420. 14:48article came out and that's where
421. 14:50my my whole world changed the fact it
422. 14:53came out with these
423. 14:55shocking allegations that olympus had
424. 14:57been doing these weird and wonderful
425. 14:59things using huge amounts of money
426. 15:01i mean olympus made around 500 million
427. 15:04us dollars
428. 15:05at that time profits tiny some lousy
429. 15:08return for business like that
430. 15:09and 1.7 billion dollars were involved in
431. 15:12this fraud you know four years of the
432. 15:14profits of the corporation
433. 15:15i had that honeymoon there was that
434. 15:17special time and in june
435. 15:19it became my when i read the allegations
436. 15:22i didn't believe them
437. 15:23they just seemed fanciful but when i
438. 15:25started to probe and question my
439. 15:27colleagues including kikukawa
440. 15:29you know i knew there was something
441. 15:32rotten at the top of this corporation of
442. 15:34which i was the president
443. 15:35and so then what what happened and it
444. 15:37seems like there was
445. 15:38kind of a slow burn then for a few
446. 15:40months right i
447. 15:42i was in hamburg chairing the european
448. 15:44board meeting when i got an email
449. 15:46telling me about this fact
450. 15:47article i was going back to tokyo the
451. 15:50following weekend
452. 15:52and i i got there and
453. 15:55the first appointment was on a monday
454. 15:57morning you know i was jet lagged but it
455. 15:59was with
456. 16:00monday morning with kikukawa visiting
457. 16:02one of japan's largest
458. 16:04electrical stores i remember the meeting
459. 16:06he was very dominant
460. 16:08overbearing the founder of this company
461. 16:11who i liked a lot because
462. 16:13he shared my views on inherited wealth
463. 16:15and giving away what you've made in life
464. 16:18but he at the end of the meeting as his
465. 16:20tradition in japan he got out four
466. 16:22tickets for a big baseball game in tokyo
467. 16:24and gave
468. 16:25two to kiku kawasan and two to me at the
469. 16:28end of this meeting
470. 16:29kikukawa thanked thanked
471. 16:32and it was all in japanese though
472. 16:34everyone spoke english
473. 16:35he thanked the owner in japanese then
474. 16:38switched to english to say
475. 16:40he took my tickets out of my hand took
476. 16:42them out of my hand
477. 16:43put them in his inside coat pocket and
478. 16:46said michael's a brit
479. 16:48he likes football he doesn't like
480. 16:50baseball i thought gosh this man really
481. 16:52has lost
482. 16:53touch with you know how you should
483. 16:54behave you know
484. 16:56but i thought he would then say let's go
485. 16:57for tea and i'll tell you about
486. 16:59this article but he didn't mention it he
487. 17:02left in his limousine
488. 17:03his lexus and i left in mine i
489. 17:06then phoned up my secretary and said i
490. 17:08have to meet
491. 17:09i have to meet with chairman kikukawa
492. 17:14and she said oh michael you you mean
493. 17:16you'd like to meet at his convenience
494. 17:18and my secretary chico was lovely but it
495. 17:20was one of the
496. 17:21i regret it but i was i was so worried i
497. 17:24said no machika i must meet with him
498. 17:26today
499. 17:26please just do that for me and i saw the
500. 17:30in the car ahead kipaka was the back of
501. 17:32his head i was following his car on this
502. 17:3440 minute journey back through
503. 17:36rush hour tokyo and i saw his head and i
504. 17:39can see he was animated
505. 17:40obviously getting the call that i wanted
506. 17:42to see him that day michiko phones back
507. 17:44and i could tell by her voice he was so
508. 17:47flat
509. 17:48not because i'd been curt or harsh with
510. 17:51her but because she thought i'd hurt
511. 17:52myself
512. 17:53and she said i've spoken to mr kikuykawa
513. 17:55secretary and because you're so
514. 17:57insistent he will meet you this
515. 18:00afternoon
516. 18:00uh for lunch that's the only time with
517. 18:03mr mori
518. 18:04in a meeting room in the head office and
519. 18:07i i could feel that you know this is
520. 18:10such a lovely woman
521. 18:11but she thought what i had done was
522. 18:14deeply unhelpful for my own career in
523. 18:16olympus
524. 18:17anyway when i get to the office i go for
525. 18:19the meeting i go in
526. 18:21and the big long board table and in the
527. 18:23center
528. 18:24is kikukawa and on his right
529. 18:28chief financial officer mori and
530. 18:30kikukawa is smiling away
531. 18:33and in front i look on the table and
532. 18:35there's a platter of sushi and it's got
533. 18:37a little flag which meant
534. 18:38i knew meant it came from the best the
535. 18:40best sushi
536. 18:42supplier in the fish market in tokyo i
537. 18:44love sushi everyone knows
538. 18:46knew it olympus i love sushi but in
539. 18:50front of my seat was a tuna sandwich
540. 18:52and it still had the cling film and no
541. 18:56side garnish of salad and i i i was
542. 18:59taken back
543. 19:00by the the the message for me was that
544. 19:03kiku was the luxury sushi platter and
545. 19:06i'm the manky tuna sandwich and that's
546. 19:09my place and not to forget it
547. 19:11i i didn't touch the the tuna sandwich
548. 19:14and
549. 19:14no one touched the sushi because i got
550. 19:16out the factory magazine the hard copy
551. 19:18and i showed it to kikukawa and this
552. 19:20fact this magazine was saying
553. 19:22detailed allegations that you know the
554. 19:25company had bought three
555. 19:27mickey mouse businesses for a billion
556. 19:29dollars not listed no
557. 19:30mark to mark price hardly any turnover
558. 19:34you know a food dish company you know a
559. 19:36food dish
560. 19:38a face cream company i mean just
561. 19:41crazy and i said to kim kardashian is it
562. 19:44true
563. 19:44and to my shop he said some of it
564. 19:49and and that's where it all started and
565. 19:51i got more and more agitated
566. 19:53and i said you know i know you're very
567. 19:55busy but can i
568. 19:56meet with morrison and go through this
569. 19:59and go through
570. 20:00these allegations and i was the
571. 20:02president and he could and morrison
572. 20:04in effect worked for me so he couldn't
573. 20:05say no but he got very
574. 20:08agitated and his his eyebrows started to
575. 20:11flicker
576. 20:12and you know what you you know you know
577. 20:14everything immediately i don't know if
578. 20:15you've ever had one of those situations
579. 20:17but i knew
580. 20:18there and then this company was terribly
581. 20:21something terrible and bad was going on
582. 20:24within that
583. 20:25board you know the relationship broke
584. 20:27down as i
585. 20:29as i started to write formal letters to
586. 20:31him and a series of letters
587. 20:33he tried to tell me you know it's not
588. 20:35helpful to write these letters
589. 20:37i was told an independent committee had
590. 20:39already looked at these issues
591. 20:41if you ever heard the term independent
592. 20:42committee in japan take it for what it's
593. 20:44worth which is very little
594. 20:46and my life spiraled out of control from
595. 20:48there onwards and i suddenly found
596. 20:50myself in a
597. 20:51john grisham novel where i was the
598. 20:57protagonist