The Olympus 2011 Scandal - Case Study Example

LEADERSHIP RESEARCH PAPER Student’s Name Class Instructor Institution of Affiliation City Date 1. The Olympus 2011 Scandal Summary On April 2011, Michael Woodford a long term employee of Olympus was promoted to be the president of the Olympus Corporation. On July 2011, the Facta magazine published two articles that questioned advisory fees paid by the Olympus Corporation in the acquirement of three distinct companies and also insinuating Olympus link to the Japanese mob in terms of monetary ties. Woodford confronted Tsuyoshi Kikukawa, the Olympus chairman and Hisashi Mori, the group president about the issue in the articles and was ignored. It was then that Woodford realized that something was amiss. Woodford then hired an outside auditing company, PricewaterhouseCoopers, to conduct an investigation regarding the fees in question and compile a report. After the investigation was completed, Woodford confronted the board on various occasions urging them to accept and face the consequences of their actions. However, on Oct 14, 2011, Woodford was fired after a 15-0 vote at a board meeting. He then contacted the FBI, Britain’s serious fraud office and the British press where he handed over the compiled report of the investigation. Olympus then admitted to a 10 yearlong $ 1.7 billion accounting fraud which forced Kikukawa to resign. The root cause of the accounting fraud was the need for the corporation to make its accounting books accurate by trying to hide losses that the corporation had incurred in the year 1990 of nearly $730 million counted using the 1990 exchange rate at the time of the loss. In the process of trying to cover up the losses, the losses grew in time over $ 1billion. In 1997, the Olympus executives devised a plan to sell the investments that were incurring losses at original cost to Olympus shell companies in order to hide the losses (Tabuchi, 2011, B1). Table of Contents 1.The Olympus 2011 Scandal Summary 2 Table of Contents 3 2.Introduction 4 3.Authentic Leadership Theory 4 4.Components of Authentic Leadership 6 4.0 Self-awareness 6 4.1 Relational Transparency (Being genuine) 6 4.2 Balanced information processing (fair mindedness) 7 4.3 Internalized moral perspective 8 5.Characteristics of Authentic Leadership 9 5.0 Insight 9 5.1 Initiative 10 5.2 Influence 10 5.3 Impact 11 5.4 Integrity 11 6. Personal Reflection 12 7.Benefits of Authentic Leadership Theory 13 8.Criticisms of Authentic Leadership Theory 14 9.Conclusion 14 References 14 2. Introduction The continued emergence of corporate scandals in business leadership in the past decade have led to the need of a new leadership approach in the 21st century which is the authentic leadership approach. A Harvard professor, and his colleagues carried out a study on leadership development, 125 business leaders were interviewed from distinct socioeconomic, religious, national and racial backgrounds in order to understand how different leaders transform and remain authentic leaders. The study indicated that leadership characteristics are developed through learning regardless of an individual’s position in an organization, one does not have to be born with the leadership traits or characteristics. Therefore, the study concluded that everyone can be an authentic leader (George, 2003, 67). 3. Authentic Leadership Theory The authentic leadership development process begins when an individual understands his life stories, the potential authentic leaders frame their life stories in a manner that enables them to view themselves as individuals learning from their life experiences rather than passive observers. They create time to re-examine and reflect on their life ordeals, this enables them to develop as leaders and individuals. The authentic leaders through persistency and courageous self-exploration develop their self-awareness (Shamir and Eilam, 2005, 395). Authentic leaders also employ informal and formal support networks to assist them in remaining grounded and leading integrated lives. The ultimate mark of authentic leadership is achieving business objectives over a definite period of time, it’s through authenticity that a leader creates a business’s long-term result (Avolio and Gardner, 2005, 315). Authentic leadership theory is a leadership approach that lays emphasis on creating a leaders validity through honest relationships with his subjects through valuing their input and building the relationship on a foundation that is ethical (Avolio, Luthans and Walumbwa, 2004, 212). Authentic leaders are generally positive individuals with self-concepts that are trustworthy and they encourage openness. Through the building of trust and the generation of support from their subjects, authentic leaders improve team and individual performance (Clapp-Smith, Vogelgesang and Avey, 2009, 227). When defining authentic leadership, many author’s base their definition on the existing authenticity root construct. This authenticity construct was derived from the Greek word to know thyself which refers to being oneself, remaining true and accepting one’s self. According to Kernis, behaving authentically can be described as performing in agreement with ones preferences, needs and values in objection to performing only to satisfy others or to get rewards through pretending. Authenticity is not considered to be an individual’s true self but preferably in inclinations, motives and core feelings free expression. (Kernis, 2003, 14). According to Harter, authentic leaders can be defined as individuals that are more conscious of the way they behave and think and are generally recognized by other people as being conscious of their own and other people’s knowledge strength and moral perspective; conscious of their operating environment; and resilient, confident, optimistic, high moral character and hopeful individuals (Harter, 2002, 382). In contrast to Kernis (2003) and Harter (2002), Michie and Gooty try to explain the values and emotions effect on the authenticity of a leader. They affirm that self-transcendent values such as universal and benevolent values and positive other-directed emotions like appreciation and goodwill for others plays a crucial function in the authentic leadership development process (Michie and Gooty, 2005, 441). Authentic leadership can be defined as a pattern that utilizes and encourages both a positive ethical climate and positive psychological capabilities, to cultivate a greater self-awareness, balanced information processing, relational transparency and internalized moral perspective (Authentic Leadership components) on the leader’s part working with their subordinates, cultivating positive self-development (Ilies, Morgeson and Nahrgang, 2005, 373).This definition and the theory of authentic leadership lays out the four authentic leadership components (Caza, Bagozzi, Woolley, Levy and Barker, 2010, 53). 4. Components of Authentic Leadership 4.0 Self-awareness In order for an individual to qualify as an authentic leader, it is necessary for the individual to know his or her own strengths, values and weaknesses. It is crucial for a leader to know his values and what he or she stands for. Self-awareness is also important in the development of other authentic leadership components (Sparrowe, 2005, 419). In the Olympus scandal, Michael Woodford displays his authentic leadership through self-awareness. After having served Olympus Corporation for 30 years and being appointed as the president of the Corporation, Woodford had discovered his own strengths, values and weaknesses. The values Woodford stood for as a leader are displayed in his search for the truth upon realising that there were some undisclosed payments for various acquisitions that were not reflected in the corporation’s financial reports. 4.1 Relational Transparency (Being genuine) An authentic leader is always straightforward and honest when dealing with other people, he or she is genuine and has no hidden agendas or motives. With an authentic leader, an individual in layman’s terms knows where he or she stands. Upon realizing that something in the corporation’s financial records was amiss, following a publication report by the Facta magazine alleging that Olympus had provided payments for unreported acquisitions, Woodford confronted the top executives of the corporation among them Hisashi Mori and Kikukawa on the issue. However, Woodford was ignored. Upon hiring an outside auditing firm, Woodford then approached the board of directors with the results from the external auditing firm and demanded answers even though none was given. Tsuyoshi Kikukawa and Hisashi Mori, both top leaders in the Olympus Corporation did not practice relational transparency where they were not been genuine with their employees and the shareholders. They both had a hidden agenda of covering a decade long accounting fraud and were not honest and straightforward with Woodford even when he became the Chief Executive officer of the Olympus Corporation. Therefore, it can be concluded that both Tsuyoshi Kikukawa and Hisashi Mori were not authentic leaders. 4.2 Balanced information processing (fair mindedness) An authentic leaders should have the ability to objectively evaluate information before arriving at a decision, which involves encouraging other individuals especially the subordinate staff to challenge or question his or her values. The authentic leader considers all the opposing viewpoints before determining a course of action, plans made under authentic leadership are well evaluated and openly discussed. Unlike Tsuyoshi Kikukawa and Hisashi Mori, Woodford indicated a balanced processing of information where after receiving a compiled report from an outside auditing company he had hired (PricewaterhouseCoopers), he involved the board of directors instead of directly going to the authorities where he tried to tell them to accept the consequences of what they had done. Woodford continued to engage them until he was fired, he then decided to report the case to the media and the authorities. 4.3 Internalized moral perspective Every authentic leader have an ethical core. An authentic leader conducts a self-regulation based on moral values that are internalised (in opposition to those enforced by a group, society or organisation). An authentic leader expresses this in situations requiring ethical behaviour and ethical decision making. The authentic leader should be driven by the concern and need for fairness and ethics. Woodford displayed an internalized moral perspective on various occasions. After being promoted to the position of the Olympus president and realizing that something was not right in the corporations accounting reports, Woodford confronted his superiors, especially the board’s chairman Tsuyoshi Kikukawa, on the issue. Despite the fact that it was Tsuyoshi Kikukawa who had promoted him, Woodford was not afraid. In order to try and buy Woodfords loyalty and silence, Tsuyoshi Kikukawa promoted Woodford to the position of the Olympus CEO. However, this did not silence Woodford who continued with his inquiries. It was later, after hiring the services of an outside auditing company and identifying the decade long fraud that had been going on, that Woodford was fired with no reason. Seeing that the top executives had failed to confess to their crimes and wanted to get away with the decade long accounting fraud by firing him so that he could not pursue issue any further, Woodford reported the case to the appropriate authorities in order for justice to be served. 5. Characteristics of Authentic Leadership Many individuals considers influence as a primary characteristic of an authentic leader, by definition, leadership and position held by an individual are two distinct things. An individual can be a manager but he or she is not an authentic leader, however, leadership is way more than just influence. The following are the characteristics of an authentic leadership. 5.0 Insight All authentic leaders regardless of their position or background have insight or vision. Authentic leaders need more insight, discernment and wisdom so that in case they are faced by a complex situation, they can look at the situation and gain clarity and understanding and establish the course of action to take. Woodford displayed the trait of insight when he was faced with the complex situation of the Olympus accounting fraud which he had unveiled on his own. Upon receiving a compiled report by the PricewaterhouseCoopers auditing company, he reviewed the records and obtained an understanding of the situation. After much thought he arrived at a course of action which involved confronting the top executives and encouraging them to come out clean to the public and accept the consequences of their actions. Earlier on, while he was still a European Olympus director in 2008, he had noticed various complex situations regarding fraud where he had opted to resign. However, he didn’t resign after being reassured that the situation had been addressed. Tsuyoshi Kikukawa and Hisashi Mori also showed insight, however the course of action they established was not legitimate for it involved committing accounting fraud and cheating shareholders. They were not genuine and honest. 5.1 Initiative An authentic leader displays initiative, they are actively engaged and do not request their followers to do what they themselves do not want to do. They lead their subordinates by setting an example for them. Tsuyoshi Kikukawa and Hisashi Mori as Olympus top management show initiative in their cover up of the decade long accounting fraud. They do the cover up in collaboration with some subordinate staff members of the corporation. They encourage the accounting fraud acknowledging the fact that it is them who would be held responsible if the accounting fraud was exposed. However, this cannot be considered as a good initiative as long as it involves breaking the law and do not adhere to ethical standards. Woodford is an authentic leader, as a newly appointed chief executive officer and a previous president of the Olympus Corporation. He tries to lead by example through exposing of a decade long accounting fraud in the corporation. Through this action, he sets an example to his subordinates of practising transparency, ethics and integrity in the corporation’s day to day activities both to the public and the shareholders. 5.2 Influence An authentic leader exerts influence among his subordinates through their strong vision and values which attracts followers, this enables the authentic leader to drive the individuals to act. Authentic leaders who exert influence are usually compared to human wave pools where they create a ripple effect everywhere they go. Woodford, in his few months as an Olympus corporation top executive had exerted influence to his subordinates and the board of directors. Despite the fact that he was trying to reveal an accounting fraud that the top executives had been covering up for over a long period of time, it’s evident that his strong vision and values exerted a positive influence to the corporation’s top management to expose the fraud and deal with the consequences. Woodfords strong vision and values made the board to fear him and he ended up been fired. Just like a wave pool, Woodford created a ripple effect in the whole Olympus Corporation by exposing the accounting fraud. 5.3 Impact This is an important characteristic of an authentic leader because what matters at the days end is the difference that the leader has made. It’s because of their ability to impact that causes the world and businesses to change for the better. Authentic leaders are capable of making a lasting and a real difference. The difference that a leader makes on the environment and on his or her followers is the only measure that can be used to determine a good authentic leader (Avolio, Gardner, Walumbwa, Luthans and May, 2004, 801). Woodford made a big global impact on business leadership by unveiling the Olympus 2011 corporate scandal of an accounting fraud that had been carried out by the Olympus Corporation top leadership for over 10 years. By unveiling the accounting fraud, Woodford changed business leadership where individuals started looking for authentic leaders who were genuine. He also made it possible for the introduction of new international accounting standards and regulations by the international accounting bodies in order to prevent such an event from ever happening again. Woodford also facilitated the change in top leadership of the Olympus Corporation where some top executives were replaced by new executives in order to restore public trust towards the corporation. 5.4 Integrity Not all leaders are benevolent, many historic leaders such as Mao Zedong had impact, initiative, insight and influence. However, they did not exercise integrity. The lack of integrity in a leader influences the leader’s impact. Authentic leaders practice integrity, this is what makes their impact on their followers to be positive (Leroy, Palanski and Simons, 2012, 255). The Olympus top Executives especially Tsuyoshi Kikukawa had the corporation’s best interest at heart when committing the accounting fraud in order to protect the organizations reputation and shareholders. However, they were not honest with their subordinate staff, the new CEO, Michael Woodford and their shareholders. This top executives tried to hide the accounting fraud even though at last the fraud was exposed. This created a negative impact on the shareholders and the subordinate staff. On the other hand, Michael Woodford exercised integrity in all his actions and activities, by doing this he created a positive impact on his subordinates and the board. 6. Personal Reflection From the leadership lessons in class, especially the authentic leadership theory, I learnt the following. The frequency at which the world is changing itself needs adaptability, agility and flexibility of leadership approaches and styles to the continuously changing landscape. Social, technical, financial and economic issues are increasingly becoming complex without even considering the very moral, consciousness and ethical testing dilemmas which are more complex in nature. As an individual, I should struggle to be authentic and unique in order to form a collection of authentic values, principles and perspectives which can help in complex complex situations. Even though there will be conflicts and tensions, this can also lead to the existence of one stability stronghold which is authenticity. Authentic leaders are moulded by important life events that facilitate the development of authenticity. As simple as it seems, it’s not easy to become an authentic leader. An individual must do a lot of self-reflection and have no fear in doing the correct thing. An individual must also be selflessness. In the contemporary world full of dysfunctional and morally corrupted leaders, the theory of authentic leadership has become famous as people and organizations continuously keep on searching for good leaders deemed as authentic leaders. Authentic leadership embraces the whole leader and establishes that the leader can’t just be authentic in times of need only. This implies that as a single individual willing to become an authentic leader in the contemporary world, this is a no simple process for I have to learn to put the needs of others before mine and try to understand myself more through an extensive self-reflection. I always considered many individuals regarded to as authentic leaders as individuals with two ‘faces’ and that they were simply pretending to be authentic leaders and had their own agendas. However, from the authentic leadership lesson, I realized that in order for an individual to be deemed as an authentic leader, the individual must exhibit authentic leadership traits at all times and not only in some situations. Despite this theory being famous, it has its own benefits and criticisms which include the following: 7. Benefits of Authentic Leadership Theory The theory in its own way fulfils the society’s outspoken need for leadership that is trustworthy thus, the theory fills the void of trustworthy leadership in the uncertain world. Secondly, just like the theories of servant and transformational leadership, the authentic leadership theory has a specific moral dimension. Thirdly, the authentic leadership theory provides detailed guidelines to individuals who aspire to develop to authentic leaders. The theories theoretical and practical approaches provides this guidelines by providing a map. Fourth, being an authentic leader is a development process and every individual can learn to become an authentic leader. Lastly, the impact of authentic leadership can be measured using the Authentic Leadership Questionnaire (ALQ) (Walumbwa, Avolio, Gardner, Wernsing and Peterson, 2008, 89). 8. Criticisms of Authentic Leadership Theory The main criticism of this theory is that it is still in the formative stages, therefore, some of its practical approach concepts have not been completely developed. Secondly, the authentic leadership moral components are not yet fully defined, it’s therefore unclear on how high values like justice inspire authentic leadership. Third, the reasoning behind the inclusion of positive psychological capabilities as a faction of authentic leadership is yet to be elaborated by researchers clearly. Lastly, the existing connection between positive organizational outcomes and authentic leadership is still unclear. It has not been concluded yet, whether authentic leadership is enough to meet organizational set goals and objectives (Cooper, Scandura and Schriesheim, 2005, 475). 9. Conclusion Being an authentic leader means that the leader displays the traits of an authentic leader throughout his life. He or she should demonstrate their capability to show the right behaviour especially in complex situations and challenges. A leader must exhibit self-awareness at a high level because self-awareness is crucial and is the foundation of an authentic leader. A leader is not authentic with his or her followers if the followers cannot understand what it looks like for them. References Avolio, B.J. and Gardner, W.L., 2005. Authentic leadership development: Getting to the root of positive forms of leadership. The leadership quarterly, 16(3), pp.315-338. Avolio, B.J., Gardner, W.L., Walumbwa, F.O., Luthans, F. and May, D.R., 2004. Unlocking the mask: A look at the process by which authentic leaders impact follower attitudes and behaviors. The Leadership Quarterly, 15(6), pp.801-823. Avolio, B.J., Luthans, F. and Walumbwa, F.O., 2004. Authentic leadership: Theory building for veritable sustained performance. Lincoln: The Gallup Leadership Institute. 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