Olympus corporate culture attacked by staff and probed by DoJ

Olympus leads new battle with whistleblower over alleged illegal payments in China, seven years after former chief executive Michael Woodford was fired for sounding the alarm over $ 1.7 billion accounting fraud .

The medical device maker was sued in January by one of its own lawyers, Hiroki Sakakibara, who claimed the company retaliated against him when he defended a colleague who tried to expose corruption allegations in Shenzhen. Mr. Sakakibara is asking for 5 million yen ($ 44,500) in damages.

“I did what I felt I had to do, so I have no regrets in the future,” Sakakibara told the Financial Times.

The company’s handling of internal complaints about its activities in China – illustrated by interviews with employees, court documents and internal memos consulted by the FT – suggests breaches of compliance measures put in place after the 2011 scandal. .

A number of affected employees said the case illustrated a glaring lack of change in corporate culture, even under the new management team that was installed in 2012 with the promise of stronger governance and more. transparent. Employees are reluctant to challenge questionable decisions made by their bosses for fear of retaliation from management, the people said.

Similar concerns about corporate culture, according to internal notes reviewed by the FT, are shared by the US Department of Justice, which continued to investigate the Japanese company over bribes paid to doctors. and hospitals, and superbug outbreaks involving his duodenoscopes in the United States.

Latest dispute at Olympus comes as Japanese corporate culture and governance standards are put to the test following an accounting and financial crisis at Toshiba and a series of confessions of data tampering at Kobe Steel, Subaru and many of the country’s largest industrial groups.

The lawsuit filed by Mr Sakakibara, who joined the company in 2016, has its roots in questions over a $ 4 million payment that an Olympus subsidiary made to a Chinese repairer in December 2014 to resolve an issue. customs dispute with Chinese government officials over inventory levels at its manufacturing plant in Shenzhen.

The decision to hire a Chinese company called Anyuan, which later used the contract name of Shenzhen Anping Tai Investment and Development, as a consultant, immediately sounded alarm bells within Olympus’ legal department in Asia-Pacific. The employees pointed to Anyuan’s alleged links to at least two corruption cases, presenting reports from the state-run Xinhua News Agency.

In early summer 2014, two external law firms commissioned by Olympus subsidiaries in China and Asia-Pacific advised against hiring Anyuan, citing corruption risks.

After submitting the reports to an Olympus auditor, the company launched an eight-month internal investigation by three outside directors and a law professor with the help of two outside law firms.

But the investigation concluded in October 2015 that there was no concrete evidence that any bribes were paid by Anyuan to Chinese government officials. The investigation revealed compliance violations in the way Olympus approved the payment to Anyuan, as the opinion of legal, accounting and finance departments was overruled by senior management decisions.

Anyuan could not be reached for comment. He did not cooperate with Olympus’ internal investigation, but his representative told investigators that he had used “only legal means to achieve the objective of the contract”.

The ties with Anyuan, however, continued to weigh on Olympus. In 2016, Anping Tai sued the Japanese group in 2016 for allegedly failing to transfer two employee dormitories as part of his consultancy contract. In July this year, Olympus was ordered to pay Anping Tai $ 30 million in damages by the Shenzhen Intermediate People’s Court, a decision it appealed against. The company also decided to shut down its factory in Shenzhen, which was the focus of its contract with Anping Tai, in May, citing a slowdown in the digital camera market.

In an interview, Mr Sakakibara, the company’s lawyer, said he learned of the controversy in China after meeting another employee who continued to warn Olympus executives to sever ties with Anyuan, citing the anti-corruption risks posed by its activities in Shenzhen.

The employee, who was responsible for corporate governance and legal affairs at Olympus’ China and Asia-Pacific units, sought legal advice on the company’s contract with Anyuan last year at three other law firms and urged the company’s global general counsel to reconsider the matter, according to Mr Sakakibara and court documents.

The employee then went to an outside Olympus director, who raised the issue with senior management at Olympus and was told the issue was resolved through two internal investigations.

Nine days after Olympus held a meeting with non-executive directors to explain Anyuan’s problem on November 21, the employee was reassigned to a new department overseeing government affairs, where he felt he didn’t. had received no real role, according to court documents.

“This incident makes me think that there has been no improvement in our corporate culture,” the employee wrote in an email to Hiroyuki Sasa, the president of Olympus, following his move. , according to a document submitted to the Tokyo District. Court and examined by the FT.

Mr. Sakakibara was also denied access to company emails and ordered to stay at home after distributing investigative materials by outside law firms into payments in China to individuals. outside directors and over 300 employees. In the emails, he pointed out the possibility of retaliation against the director of legal affairs.

Olympus said it has been considering creating the new government affairs department for several years and has selected the head for his legal expertise as well as top employees from other divisions. She added that her action against Mr. Sakakibara was aimed at preventing him from disseminating confidential information.

The controversy in China came at a particularly sensitive time for Olympus, which has been the subject of an investigation by the DoJ since the accounting scandal of 2011.

In March and August 2015, the company’s U.S. affiliate received subpoenas from the DoJ seeking information following outbreaks of superbugs suspected of being linked to its duodenoscopes in U.S. hospitals. Earlier this year, Olympus set aside 9.65 billion yen in reserves related to the ongoing investigation.

In 2016, Olympus’s U.S. unit also entered into a three-year deferred prosecution agreement after agreeing to pay $ 646 million to settle two corruption investigations conducted by the U.S. government. The deal allows Olympus to avoid conviction if it meets certain reform and compliance requirements.

According to internal notes consulted by the FT, DoJ officials expressed their concerns during an exchange with Olympus last summer about the measures the company was taking to correct its corporate culture.

“What is the company doing from a cultural point of view, so that we are not here in two years with another problem? A DoJ official said at the meeting.

The DoJ declined to comment. Olympus said it communicated the outcome of its investigation into payments in China to the DoJ and considered the matter outside the jurisdiction of the DoJ.

Under a new management team led by Mr. Sasa, Olympus says it now has a high-quality governance structure with more outside directors from blue-chip Japanese companies such as Itochu and Honda.

Toshiaki Yamaguchi, lawyer and corporate governance expert, said replacing senior executives following a scandal has not ensured a change in corporate culture. “People who act on unspoken orders from the top often stay and are not penalized, so we often see cases where employees despair that the corporate culture does not change easily,” he said.

Additional reporting by Kadhim Shubber in Washington

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