It all began with the sacking of Michael Woodford on October 14, 2011. Named CEO only weeks before the stunning dismissal, Woodford, a Brit, was also only a few months into his role as the first ever non-Japanese President of Olympus Corporation.

The board accused him of ‘diverting from the rest of the team in regard to the management direction and causing problems for decision-making'. The sore point was his submission of a ‘report' to the senior management, audit and legal offices and calling for the resignation of certain members of the management team. But can there be smoke without fire? What put this camera and precision machineries/instruments maker on shaky ground?

Creating a front

In the eye of the storm is a series of four acquisitions made in the past decade . The company this week admitted for the first time that it used more than $1 billion of acquisition-related payments as a cover to write-off losses related to securities that it had been hiding since the 1990s.

For example, for the acquisition of UK medical equipment-maker Gyrus in 2008, the company is said to have paid a hefty advisory fee of $687 million, which was as much as about a third of the acquisition price of $2 billion.

Between 2006 and 2008, Olympus also acquired three small Japanese companies outside its core business, but wrote down a major chunk of their values mostly within the same year. It was this brushing under the carpet that Woodford had questioned.

Details on when, where and how much Olympus exactly lost and how they managed to conceal it have not emerged clearly.

But it is said that they could have used something called “tobashi”, which became notorious in the 1990s following the burst of the real estate and stock market bubble of the 1980s in Japan.

Fly away, losses

Meaning “fly/blow away” in Japanese, companies used this technique to hide losses related to investments by transferring the loss making assets to shell/dummy companies.

A recent report in Financial Times explains how the brokerage that arranged the original investment scheme then devised the cover-up scheme too. It points out how Yamaichi Securities, one of Japan's biggest brokerages, went bust in 1997 after trying to make ¥260 billion (about $3.35 billion) of its own losses “fly away”.

In fact, back in June 1998, rumours that Olympus had suffered huge losses on derivatives trading did surface. But Olympus denied the charges then. Reports suggest that it however, did announce part writing off of a ¥45 billion investment in emerging market bonds in September 1998 and a loss of about ¥17 billion from trades including interest rate and currency swaps in October 1999. In hindsight, these could have been only the tip of the iceberg!

Besides, Shuichi Takayama, the new President has revealed on Tuesday the names of two firms - Global Company and Axes Securities – as being involved in the scandal, though their exact roles are unclear.

What perhaps adds to the drama are reports that Olympus worked with people with links to the Japanese mafia to create these bogus transactions. In all, it has brought to light the pain points in corporate governance witnessed time and again across the world, be it Enron or Satyam or Olympus.

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