Business bookshelf: 'Exposure'

  • Updated: December 8, 2012 - 3:33 PM

Michael Woodford, Portfolio, 258 pages, $27.95

In April 2011, the Japanese cameramaker Olympus appointed its first foreign president, Michael Woodford, a Briton and 30-year company veteran. Six months later he was sacked after questioning $1.7 billion in suspicious transactions. His rapid ascent and downfall for doing the right thing is nicely told in this first-person whodunit.

The story began when Olympus bought three tiny, profitless companies in 2008 for $800 million, only to write down three-quarters of their value by the end of the financial year. And it gave nearly $700 million in "advisory fees" to a Cayman Islands entity whose ownership was unclear. When Woodford found out, he sought answers from the firm's chairman, Tsuyoshi Kikukawa, to no avail.

"Exposure" treats readers to a fascinating inside look at bare-knuckled corporate governance. Woodford informs the board of his concerns but is met with silence. He tells the company's auditors. He hires forensic accountants. At a board meeting that was called to discuss the strange deals, the chairman reads a resolution calling for Woodford's dismissal. "All 15 members raised their hands in approval," Woodford writes, like "children in a classroom."

Woodford then finds he has bigger troubles than losing his job; he fears for his life. No one knows where the money has gone, but there are hints that Japan's mob may be involved.

What actually happened to the money? Woodford's description of the financial fraud is exceptionally clear. It was not the mob but managers, who tried to use accounting write-offs to cover up investment losses.

"Exposure" should be compulsory reading for company directors and MBA students. But they should take Woodford's self-justifications with a pinch of salt. It could be argued that Woodford was naive to confront the chairman without having first amassed internal allies. If he had played a discreet, long-term hand rather than force the issue, could he have cleaned up the company more effectively and kept his job?

Still, Woodford stands tall as an example of leadership. Read his book and ask yourself: Would you do the same thing?

THE ECONOMIST

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