STEVE INSKEEP, HOST:
And here's a follow-up to the dramatic scandal at Olympus, which we've been following on this program. It's one of Japan's most respected corporations - or it was. Now executives Olympus are facing criminal charges and prison sentences. The company may be delisted from the Tokyo Stock Exchange, and may also go bankrupt. All this after revelations of dubious acquisitions and allegations of massive accounting fraud. From Tokyo, Lucy Craft has more.
LUCY CRAFT, BYLINE: Olympus Corporation has been in business for almost a century. And while not as famous overseas as Toyota, Sony or Nintendo, until recently, no company seemed to more perfectly embody its own name. In one way or another, Olympus products reach nearly every Japanese citizen. While its digital cameras are losing ground, the company has carved out a reputation for technical excellence in medical equipment. So when news broke that for 20 years, Olympus executives had been cooking the books - that the company may be in hock for over a billion dollars - Christina Ahmadjian, who studies corporate governance in Japan, couldn't believe her ears.
CHRISTINA AHMADJIAN: Complete shock. It just didn't compute that the reputation of Olympus has been such a high quality, good, responsible company, that hearing this just did not compute at all.
CRAFT: Japanese police and financial regulators are still sorting out the mess. But observers say it all began in the mid-1980s. Olympus began to founder after moves to weaken the dollar suddenly made Japanese exports less competitive. Anxious to beef up its bottom line, Olympus followed the crowd, according to Shuhei Abe, president of the Sparx Group hedge fund.
SHUHEI ABE: They went into what they called zaitech. That is financially investing their idle cash to make up their slowing down earnings.
CRAFT: And this was quite common among many...
ABE: It was very common. Everyone did it and if you didn't do it, management was considered to be a bit outdated.
CRAFT: But when Japan's bubble economy burst, and later, when finance regulators tightened rules on accounting, Olympus didn't do what most other Japanese companies did; it never came clean on its losses, choosing instead to hide its mistakes with a series of overpriced acquisitions using Cayman Islands-based companies.
The Olympus scandal has reinvigorated the debate over Japan's corporate governance. Most companies in the world's third-largest economy have refused to put independent directors on their boards.
Koji Aiba, of Tokyo's Waseda University, says the lack of oversight allows a Japanese CEO to ignore his shareholders with impunity.
KOJI AIBA: He picks the board members from his subordinates and he has the power to shuffle the board member. And when he goes to the shareholder meeting he already has a proxy of more than 50 percent in his hands, so he doesn't really have to care.
CRAFT: The insider mentality at Olympus is reminiscent also of Tokyo Electric Power, whose Fukushima Daiichi nuclear plant became the world's worst nuclear disaster since Chernobyl. Christina Ahmadjian says the overriding instinct at such firms is to hide mistakes at all costs.
AHMADJIAN: The sense that we must be loyal to our predecessors, that we can't blow the whistle, we can't criticize because of these bonds of loyalty are very similar, that's very Japanese culture.
CRAFT: Japan has been moving towards better disclosure in recent years. The Olympus debacle, which has put Japanese corporate governance under global scrutiny, won't transform standards overnight, but is widely expected to at least hasten moves toward reform. For NPR News, this is Lucy Craft, in Tokyo.
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