This posting is the second of a six-part series examining prominent corporate crises impacting U.S.-based business operations during 2011.
To a person, the Chief Executive Officers (CEOs) I’ve worked for during my 20+ years in FORTUNE 500 Corporate Communications were earnest, whip smart, hard working business professionals who cared about the company’s employees, drove everyone in the organization toward high-quality decisions and sought to ensure the operating communities were improved through the company’s philanthropy. As a point of comparison, the present day stereotype views CEOs as greedy, overpaid, stock manipulators who only last in the role long enough to secure their next golden parachute. Let’s be honest, the stereotype is likely true of some CEOs, but certainly not a majority.
As you consider which five crises deserve your votes in the “Top 5 Corporate Crises During 2011” poll co-sponsored by Evolving World Communications (EWC) and the Institute for Crisis Management (ICM), readers should consider the cases of Michael C. Woodford, the ex-CEO of Olympus Corp., and Jon S. Corzine, the former U.S. senator and New Jersey governor who presided over the collapse of the commodities brokerage MF Global.
Unknown to most Americans, the Olympus Corp. scandal is being waged in Japan but has U.S. implications because of a major accounting scandal and secondarily, ramifications related to corporate governance. A global manufacturer of precision machinery and instruments, cameras, voice recorders, medical devices, face cream and plastic tableware, Olympus Corp.’s U.S. operations are headquartered in Center Valley, PA.
Woodford, a British businessman, became company president in April 2011 and CEO in August 2011, making it safe to assume the Olympus Board of Directors appreciated the work ethic Woodford demonstrated in his first 30 years of working for the company. His CEO appointment was particularly momentous as he became the first non-Japanese person to fill that role.
Despite his 30-year history at the company, Woodford soon learned details that shocked him to his core. During a review of the company’s financial statements, Woodford identified a $687 million advisory fee linked to a $2.2 billion acquisition in 2008, as well as other deals he says destroyed roughly $1.3 billion of shareholder value. Exercising his fiduciary responsibilities, Woodford opened an investigation into the company’s accounting practices and notified the company’s Board of Directors.
Within two weeks of placing him in the role, the Olympus Board fired Woodford for his aggressive Western managerial style. Woodford, on the other hand, believes his dismissal occurred after raising questions about the company’s payouts related to M&A activity. Based upon developments over the past 60 days, it now appears previous executives knowingly engaged in tobashi schemes with organized crime syndicates to obscure billions of dollars in investment losses. The scandal has spread to three continents with the U.S. Federal Bureau of Investigation looking to learn if the alleged fraud and/or organized crime syndicate deals involves executives from the company’s Pennsylvania operations or extends to the U.S. financial markets.
Ultimately, Mr. Woodford’s veracity hinges on whether people believe he sufficiently investigated all aspects of his new responsibilities before accepting his new job OR did a series of observations witnessed over the past decade fuel suspicions that he set out to confirm once he gained access to the CEO chair.
MF Global: A Company Name or An Investor Expletive?
When one considers the education Americans received about the role credit derivatives played in the 2008 economic crash, you’d like to believe that three years later that the federal government, the investment industry, somebody with an eye cast toward the practices of the Wall Street financial community would have imposed controls to regulate or monitor, at minimum, the types of byzantine derivative investment opportunities offered to private investors. Uhhh, no!
Into that vast wasteland walks the imposing figure of Jon Corzine, a clueless giant who as CEO of MF Global oversaw the disappearance of $1.2 billion in missing client funds and the company’s October 31 bankruptcy filing, which is the eighth largest in U.S. history.
Imagine the sheer terror of being subpoenaed by the Senate Agriculture Committee after losing more than a billion of your customer’s dollars and driving one of the nation’s leading commodity brokerage firms into a Top 10 ranking for bankruptcies during the 235-year history of the United States. With armies of public relations professionals spin doctoring their asses off, let there be no doubt Mr. Corzine would have a clear explanation of how such a tragedy could occur. Uhhh, no!
“I simply do not know where the money is, or why the accounts have not been reconciled to date,” Corzine said.
Dean Wormer said, “Fat, drunk and stupid is no way to go through life, son.” Corzine showed the world it is possible to reach positions of prominence by placing all your focus on maximizing the last standard Dean Wormer referenced. If you are the most senior officer of a company entrusted with the investment of client funds, common sense suggests that you keep an eye on the investment vehicles if for no other reason than a major client calls to ask, “How we doin’ this month?” Was this Jon Corzine’s practice? Uhhh, no!
Having transpired so late in 2011, much of the details remain uncovered. Still to be determined is whether client funds can be recovered and whether a fraud took place. The FBI, the Commodity Futures Trading Commission and other authorities are investigating and trying to determine what happened to and the location of the missing funds.