Lessons from a Whistleblower: Putting Integrity into Practice


As Michael Woodford boarded a plane from London to Tokyo in March 2011, just days after the devastating earthquake in Japan, he found himself sitting alone in the first-class cabin that was typically full of busy executives. Why was he going to Japan, despite travel warnings, panic, and fears of environmental contamination? As CEO designate of Tokyo-based Olympus Corporation, he felt it was the right thing to do. Woodford went on to tell the audience at the 66th CFA Institute Annual Conference in Singapore the story about his brief time as the CEO of Olympus and his discovery of a $1.7 billion accounting fraud. Just as on that empty plane, Woodford had to stand alone in a culture in which speaking out was not rewarded.

He had attained the role of CEO as the culmination of a 30-year career at Olympus, where he had built business lines and developed relationships with people, such as company chairman Tsuyoshi Kikukawa, who, Woodford said, “was like my favorite uncle.” Initially, everything seemed idyllic. The stock price went up when he was announced as the CEO, and it continued to climb. “I realized how easy it was because in Japan, everyone does what you tell them to do, which is a problem, but it can be a power to get a lot done quickly.”

It didn’t last long, though. As Woodford began to ask questions and inquire about a FACTA magazine exposé, he was stonewalled by Kikukawa and the board and then fired. Meanwhile, he learned that the fraud was linked to organized crime in Japan, and he realized that not only his career was at stake but also that his personal safety was in peril. When he made his first visit back to Tokyo after these events, he was accompanied by no fewer than 30 bodyguards — more than Michael Jackson had on his Japan tour.

This was not the kind of fame Woodford had sought: to be fired in a country where no one gets fired, to expose fraud at a company he had loved, and to see the stock price fall more than 80% as a result.

So what are the lessons that we can learn from Woodford’s story, particularly as investment professionals?

  1. Question your assumptions. Even your “favorite uncle” and the firm you have known for years could be hiding something. Woodford noted that asset managers that were large shareholders were lied to by management repeatedly. Fraud is not easily detected, but the best analysts ask tough questions and demand satisfactory answers.
  2. Never underestimate the importance of culture. Woodford was shocked to realize that the Japanese media were self-censoring to protect Nikkei-listed stocks. Although his story points to weaknesses in Japanese corporate governance specifically, this concept extends more globally as well.
  3. Leadership often demands personal courage.  In the aftermath of the Olympus scandal, Woodford has been inundated with people who come to him with their own stories of ethical dilemmas in the workplace. They ask how he had the courage to speak up when others didn’t and what it takes personally to be a whistleblower. These people are not the people in the news, and many of them still choose silence. They are not necessarily high-profile executives, but they are the ones who see the ethical problems in companies every day and must weigh the costs of telling the truth.

CFA Institute president and CEO John Rogers, CFA, noted in his opening remarks at the conference that “capital markets thrive in sunlight.” If Woodford’s story tells us anything, it is that one person who stands alone — and stands for what’s right — can bring the truth to light and make a difference.

Additional reading on this subject: Blurry Images: Investors, Regulators, Auditors Missed Olympus Warning Signs” by Padma Venkat, CFA

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

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