Whistleblowing has become a major news item again since Edward Snowden recently decided to expose secretive materials of the National Security Agency. What about whistleblowing in the corporate world? During the St. Gallen Symposium in Switzerland, Michael Woodford (former CEO of the Olympus Corporation) shared his insights and experiences in whistleblowing in the Olympus scandal. His story provides us with valuable lessons regarding corporate governance and human nature, but an elementary question remains: where do we go from here?
ST GALLEN, Switzerland – Whistleblowing: an act of courage or betrayal? There is no definitive answer; it rather depends on whom you ask. One thing, however, is sure: transparency can be a dangerous thing. Just ask Edward Snowden, “one of America’s most consequential whistleblowers” according to The Guardian. Snowden recently handed over secretive materials from NSA which led to one of the ‘most significant leaks in US political history’. In a dramatic turn of events, the young whistleblower now has to hide and shun any publicity while he initially acted in the public interest. Whistleblowing is a delicate matter also not uncommon in the corporate context.
Sharing similar ethical dilemmas, whistleblowing also led to the compelling discussion during a recent one-on-one interview with Stephen Sackur (presenter of HardTalk, BBC) and Michael Woodford, the former CEO of the Olympus Corporation in Japan. Woodford caused quite a stir when he became a whistleblower two years ago, revealing in his own company one of history’s biggest corporate governance scandals. At the 43rd St. Gallen Symposium in Switzerland, Woodford shared his side of the incredible story of the Olympus scandal.
Woodford, who had been working at Olympus for 30 years in the European division, was appointed as president of the Olympus Corporation in 2011. The appointment was a rare accomplishment for a Westerner who also happened to not speak any Japanese. However, he was shortly fired after probing into a questionable set of Olympus’ acquisitions and a related record-high $700 million management consultancy fee. Woodford only read about the fee in a detailed article in the small Japanese magazine Facta which was translated and forwarded to him in an e-mail. The article was based on the revelation of one of Olympus’ employees – the ‘real whistleblower’, a person whose identity is still unknown to this very day and who actually still works at Olympus.
According to Woodford, this anonymous whistleblower was unraveling what later turned out to be a $1.7 billion accounting fraud. After he was squeezed out of his job because of his scrutiny, Woodford decided to break the silence by sharing his story with the Western press, fearing for his own life but at the same time firmly believing that he was acting in the long-term interest of the company.
During the interview in St. Gallen, however, it became clear through an interactive poll with the audience that not everyone might agree with Woodford’s actions. A small minority of under 10 per cent perceived that whistleblowing can be a threat to public safety. Apart from whether or not one agrees with Woodford’s narrative, his story does not only attempt to provide a better understanding of the hierarchical and conformist corporate culture in Japan to a Western audience, but also provides an exclusive insider’s view of major issues that companies and their directors may be confronted with in corporate governance. Woodford mentioned that there are, sadly enough, a lot of cases like that of Olympus out there in corporate Japan.
In Japan, good corporate governance might not be enforced nearly enough through reforms in corporate governance systems such as new incentives, reforms in board structure, shareholder activism, or the implementation of an accommodating legal framework. Woodford believes that corporate governance, including the dilemma of whistleblowing, essentially comes down to the integrity of the people running the corporation. It is a societal issue, which is not just about business but rather revolves around decision-making about what is right or wrong.
Woodford says: “We shouldn’t prostitute ourselves. You have to do the right thing… If you are a president of the company, you are there to safeguard what is strong about a company and certainly not to ignore things, which potentially could bring a company down, and nearly did so with Olympus.” Looking at the current debate evolving around executive compensation and bankers’ bonuses, Woodford believes that what directors can do is show restraint in what they pay themselves to set an example. “If you want to demonstrate ethics, start with yourselves and show moderation in pay in the boardroom.”
What is the main long-run message about courage and betrayal in disclosure from Woodford’s side of the whistleblowing story? Asked about his amount of courage, Woodford rather characterizes himself as “stubborn” and “bloody-minded”. Looking back at the event, he would not have done it differently. But instead of the term whistleblower, he would prefer to be known as a “truth-teller”.
Drawing on his own experiences and insights, Woodford has a short and simple answer when confronted with the question on how he encourages himself and others: “I think that comes from deep within and your own values. And I think you’re encouraged by the example of other people in this world.” And so it seems when reading his personal memoir, Exposure: Inside the Olympus Scandal – How I Went from CEO to Whistleblower – dubbed as a “compulsory reading for company directors and MBA students” by The Economist and a “must-read for Japan Inc.” by Bloomberg – with which Woodford might be aiming to set an example by passing on his lessons about mankind in the (Japanese) boardroom to the public. He tells me while signing a copy of his book, “It is essentially all about human nature.”
Indeed, it seems that this is not merely a story about Japan or the corporate world, but about human nature. Woodford explained during the interview in St. Gallen how several close colleagues in senior management positions from Germany, the US and the UK backed away from him from the day that he was fired. “Most people seem to care, from what I experienced, about themselves and their own nuclear families, and to hell with everyone else. It is not really a corporate issue but a societal issue.”
Where do we go from here? During the interview at the symposium, Sackur asked the audience whether they thought Woodford’s decision to stand up and become a whistleblower was either highly unusual or whether most executives would have done the same. From the reaction of the audience, it became clear that most people believed Woodford’s decision to blow the whistle was unusual.
It is fairly easy and tempting to praise or condemn another man’s action in hindsight and from a safe distance, but introspectively it would probably be more honest to question yourself. Imagine you are a company director. Would you recognize your own responsibility and be willing to deal with the consequences? Would you raise your voice just like Woodford did if you were faced with a similar situation, and what would be your rationale? With a limited amount of information available while keeping a multitude of interests in mind, which decisions would you make when you need to think and act fast?