This article will respond to the case study written by Morgan and Burnside (2014) that examines the Olympus Financial Fraud. The case study revolves around the Japanese company, Olympus, and how the Japanese culture played an important part in fostering the fraud. While the blame should be directed to the people who commit the unethical behavior, it is interesting to analyze how Japanese culture allowed these people to commit the fraudulent act without anyone in the company willing to acknowledge and stand up against their harmful decisions. Even though several executives were aware of the issue, they did not make any action against it.

When Michael Woodford was appointed as the CEO of the company, he immediately stumbled with the issue. Woodford was not a Japanese and did not submit to the secretive company culture in Olympus. He actively questioned the fraud allegation but did not get any clear answer. Instead of a clear explanation, he was fired from his job and the reason was that he did not understand the company culture as well as the Japanese culture.

Problem identification and fundamental causes of this case study

The main problem of the Olympus Financial Fraud case is the unethical behavior of the executives and board of directors in Olympus which is fostered by the unhealthy corporate culture. The company’s culture values loyalty more than honesty and fairness. It is also very secretive while putting forward faith to the leadership. These culture has been cultivated years under the country’s culture that are also very reserved, quiet, and values harmony in status quo over a challenging change.

Studies have shown that, a country’s culture significantly influences organizational culture (Ansah & Louw, 2019). Japanese culture are more concerned with maintaining harmony, respect for others, and privacy. While it is not necessarily a bad thing, if it is wrongfully applied, the culture can grow into a harmful climate where people are blindly following leaders due to respect and harmony even though the leaders are committing unethical behavior. In a workplace, it may turn into a corporate culture that lacks transparency and accountability.

We must understand that organizational cultures are not neutral in their ethical orientation, since it will develop the shared understanding of right and wrong behavior that is usually referred to as ethical work climate (Robbins & Judge, 2017). The ethical work climate will influence how the member of the organizations make moral decisions. Fraud may be covered up in organizations with a secretive culture, centralized management, and a lack of transparency (Morgan & Burnside, 2014).  

Nevertheless, Kikukawa and other Olympus leaders were sticking to their ethical belief, noting that their action was solely for the company’s interest and not for their personal interest. However, this is a poor way of thinking. Considering the four methods of ethical reasoning (virtue, utilitarian, rights, and justice), Kikukawa tried to use utilitarian perspective where the the ethical decision is chosen by comparing benefits and costs of the decision (Lawrence & Weber, 2020). He believed that his action would be for the company’s benefits and the cost for the company will be too high if he did not “cook the book”. He, and many other Olympus leaders, failed to think that their action would bring large damage to the society and the company would be responsible to cover the cost of the damage. Financial statement fraud has cost investors more than $500 billion during the past several years (Isa, 2011). Their action costs almost incalculable damage to the shareholders which are the primary interest of the company they said they were committing the crime for.

Michael Woodford, on the other side, used justice perspective, where it considers if the benefits and costs of the decision will be fairly distributed (Lawrence & Weber, 2020). He acknowledged the potential harm that the fraudulent act would bring to the shareholders. He did not submit to the secretive culture and immediately become a whistleblower.

Due to scrutinizing the issue, he was also fired from his position. While employers are entitled to dismiss their employees, the causes for the dismissal should be due to action that fundamentally interferes with the diligent and faithful performance of the employee in the job function (Sarna, 2012). His unfair dismissal also uncovered the unhealthy corporate culture that is the root cause of the case.

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Culture in Indonesia Related to the Olympus Financial Fraud Case

Based on empirical experience, Indonesia can be a mix of Japanese and Western countries in terms of culture. In a conservative organizations, the culture tends to be secretive, lack of transparency, and prefer a peaceful status quo even though it is built upon unethical behavior. However, in a more urban area, where progressive organizations are more prominent, the culture can be very open and straightforward. This mixed culture is the result of the country’s diverse community which consists of about 1,340 ethnic groups, each with its cultural stereotype.

Indonesia’s employment law does not have a specific regulation related to whistleblower. Usually, whistleblowers are protected through the Witness and Victim Protection Law which covers a more general cases. The country has ratified the United Nations Convention against Corruption (UNCAC) which obliges the country to provide protection to whistleblowers. However, oftentimes, it is only considered as applicable to government-related corruption cases. Companies often inquire whether there are any whistleblowing rules under the Indonesian Employment Law.

It is interesting to note that Indonesia’s social media culture is very strong. While whistleblower may not have sufficient support from the law enforcement body, they can become a whistleblower through social media and quickly get the support from the people. National media will quickly respond to a viral case and then, law enforcement body will do the formal work to uncover the case. Studies have found that the use of social media as a channel to disclose wrongdoing are strongly correlated with the opportunity and capability (Latan et al., 2021). The strong Indonesian online culture increases the opportunity and the capability of virtual whistleblowing.

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Ansah, M. O., & Louw, L. (2019). The influence of national culture on organizational culture of multinational companies. Cogent Social Sciences, 5(1), 1623648.

Isa, T. (2011). Impacts and losses caused by the fraudulent and manipulated financial information on economic decisions. Review of International Comparative Management, 12(5), 929-939.

Latan, H., Chiappetta Jabbour, C. J., & Lopes de Sousa Jabbour, A. B. (2021). Social media as a form of virtual whistleblowing: empirical evidence for elements of the diamond model. Journal of Business Ethics, 174, 529-548.

Lawrence, A., & Weber, J. (2020). Business and Society: Stakeholders, Ethics, Public Policy (16th ed.). McGraw Hill.

Morgan, A. R. & Burnside, C. (2014). Olympus corporation financial statement fraud case study: The role that national culture plays on detecting and deterring fraud. Journal of Business Case Studies, 10(2), 175-184.

Sarna, L. (2012). Law for Business Students. Bookboon.

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