Tuesday, January 10, 2012


Executive suite can be
bitter for shareholders


Two headlines from the daily Advisen FPN digital newsletter caught my attention.

Both dealt with shenanigans in the executive suite.

The first, "Olympus Sues Executives Over Covering Up Losses" tells how "The scandal-tainted Olympus Corporation said it was suing 19 current and former executives over their roles in a $1.7 billion cover-up of losses after an independent panel s report into management involvement in the fraud.."

The entire article, from the New York Times, is at http://www.nytimes.com/2012/01/10/technology/olympus-sues-executives-involved-in-cover-up.html. Bloomberg ran a similar article titled "Olympus May Sue Executives Over Cover-Up"; the file is found at http://www.bloomberg.com/news/2012-01-08/olympus-may-sue-present-past-executives-over-cover-up.html .

The article had two telling points.

Point 1: An unidentified panel "said it had found a culture of yes men and a board that failed in its duty to stop a rotten core of executives from duping auditors, regulators and investors."

Point 2: "Olympus shares were up about 28 percent in morning trading on the news."

The second headline, from the Miami (FL) Herald, reads: "Lawsuit: Former CompUSA executives stole millions." The Elaine Walker piece may be read at http://www.miamiherald.com/2012/01/08/v-fullstory/2579914/lawsuit-former-compusa-executives.html.

According to the article, the latest in a series of stories about CompUSA's senior staff, the current legal action "tells a classic tale of executives feeding at the corporate trough. The allegations include stealing electronics worth millions of dollars, taking family and friends on company-sponsored trips, negotiating kickbacks from vendors, and using employees for personal errands on company time."

The suit, Ms. Walker reported, noted that all the alleged actions by the former CompUSA executives a were ".intentionally and maliciously, wantonly, willfully, in bad faith"


In the Olympus's case, the Bloomberg article noted that the camera maker's scandal was uncovered "following an outside panel’s report into management responsibility." Olympus is suing "current and former executives over their roles in a(n alleged) $1.7 billion cover-up of losses," according to the Bloomberg article.

The CompUSA executives' actions were brought to light by employees and vendors who claimed they were tired of the executives' abuse.


These two incidents - alleged until adjudicated but cautionary none the less - should alert risk managers and business continuity practitioners with a broad mandate, that risk often can be found in the executive suite.

In Olympus' case, the company hopes to recover allegedly misused funds. With a 2.1% rise in its stock price, the suggestion is that the misuse of funds and the newly filed legal action comes as no surprise.

In the CompUSA matter, the issue seems to be, if the news article is accurate, primarily a matter of greed by the company's founders who allegedly treated their company as a cash cow for their personal enjoyment.

In neither case was the activities in the executive suite something that just occurred.

Could the actions have been prevented or brought to light earlier? How?

One way the deeds might have surfaced sooner, at least in the CompUSA situation, is if the risk management people had a close relationship with the rank and file, the personnel in the trenches. Having a nodding relationship with key vendors, based on the risk manager's concern that the vendor had a business continuity plan, might have given a hint to vendor unhappiness with CompUSA's way of doing business.

Japan's Olympus, on the other hand, is another matter. The NYT article noted that a "culture of yes men and a board that failed in its duty to stop a rotten core of executives." In other words, board members failed to do their duty and, if this was done in the U.S., could find themselves facing legal action along with the company president and his associates.

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