In six short months, Michael Woodford was promoted to president and CEO of Olympus and fired from those same positions. He was the first non-Japanese person to fill those roles, and his ouster reveals a culture clash between not only himself and the board of directors, but also older Japanese business practices and Western ones.
Woodford had been successful in turning Olympus’s European business around and was brought to Japan as president to shake things up a bit. Apparently he shook too hard for some people’s liking. After a Japanese magazine published an expose on some shady deals made under the watch of then-CEO Tsuyoshi Kikukawa, Woodford pushed for an investigation. Four deals were suspect—the purchase of medical device manufacturer Gyrus involved $687 million in payments to two now defunct advisory firms and the acquisition of three startup firms whose values were quickly written down. When Woodford again pressed his case in late September, he wasn’t punished. Instead, he was given the title of CEO to add to his position as president, according to the New York Times. But two weeks later, after continuing to push for an investigation, he was fired.
Times reporter Hiroko Tabuchi savvily recognized the culture clash that was at the root of the scuffle. Due diligence has not been well received by Japanese executives that hew to older business practices. Though the skepticism and number crunching involved in due diligence may seem like common sense to many, traditional Asian business deals often involve healthy doses of trust in individuals. It appears that Olympus board members forwent due diligence on the three startup purchases, preferring instead to trust the startups’ executives or the deals’ advisors. The exorbitant payments made in the case of the Gyrus buyout seem more suspect and may be a case of corporate corruption rather than just a clash of business cultures.
The decision to buy the three startup companies without due diligence highlights the difficulties some firms have in adopting new business practices, especially those from different cultures. Ed Zajac, a professor of management and organizations, recently laid out a framework for studying business practice diffusion. One proposition he and his colleagues lay out states,
When adopters experience low cultural fit between the characteristics of the practice and the organization, early adopters will implement more extensive versions whereas later adopters will implement less extensive versions of the practice.
Since due diligence has been around for quite some time—it was first codified in the Securities Act of 1933, though basic concept significantly predates that—it’s likely that Olympus falls into the late adopter category, meaning they have adopted a less extensive version of the practice. So while Olympus may have executed some semblance of due diligence in the deals, it was probably not very extensive. Olympus had not adopted the practice to the extent which Woodford thought they should. Unfortunately, he found out the hard way.
Photo by idua_japan.