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Who could forget the 2011 $1.7B accounting fraud scandal in Olympus when British-born Michael Woodford was suddenly ousted as Chief Executive for whistle blowing. He had been company president for only six months, and two weeks prior had been promoted to chief executive officer, when he exposed what has been termed "one of the biggest and longest-running loss-hiding arrangements in Japanese corporate history". Today, 5 years on, the company's new leadership are now under fire for alleged bribery and corruption in China. Reports claim that the Olympus executives understood that their Chinese fixer partner, Anyuan “could" commit bribery.

The Olympus issues highlights a deeper trend of high corporate governance risk in Japan and its root cause : "cultural risk". Japan is renown by investors as a market that is defined by an "insider" business culture with a low presence of independent directors, one of the lowest Board gender diversity rates globally and minimal accountability to shareholders.

Surprisingly, Olympus would bide well to look to the Financial Services industry for leadership on this topic. Culture and conduct are directly linked and this is what regulators in the financial services industry are working to influence through improved corporate governance, leadership and risk management, post GFC.

One of the root causes of the global financial crisis (GFC) was said to be the culture of banking and financial services. From poor tone at the top to money laundering, LIBOR manipulation and the misselling of payment protection insurance, the Financial Times is littered with allegations of unconscionable conduct. In fact, the emergence of the regulator, the Financial Conduct Authority (FCA) was a direct response to the GFC and designed specifically to address the sector's cultural and conduct risks.

This articles addresses 3 lessons for Olympus from the GFC:

1. Drivers of conduct risk

2. Four pillars of a strong risk culture

3. Why who you ARE matters more than what you sell

1. Drivers of Conduct Risk

The FCA has undertaken research into behavioural risks to help organisations shape their approach to culture. Having the right “culture”, i.e., one which puts customers and market integrity at the heart of the firm’s business, is an important component of conduct risk.

The FCA has not specifically defined culture, but has said that it will assess it by looking at areas of a firm’s business and behaviours through a range of different measures such as:

  • how a firm responds to, and deals with, regulatory issues;
  • what customers are actually experiencing when they buy a product or service from front-line staff;
  • how a firm runs its product approval process and what factors it takes into account;
  • the manner in which decisions are made or escalated;
  • the behaviour of that firm in certain markets; and
  • the remuneration structures.

Firms should ask themselves the question: ‘should we’ carry out a certain activity as well as ‘could we’ do it. To put it another way, ensuring your firm operates to the highest standards is a cultural question not a control or process challenge.

Clive Adamson, director of supervision at the FCA, in a speech entitled, “Ensuring the UK remains open for business – requirements for foreign-owned firms” at the Association of Foreign Banks, London


2. Four (4) pillars of a strong risk culture

The Financial Stability Board (FSB) articulates 4 pillars of a strong risk culture in its publications on risk governance, risk appetite and compensation:

  1. Tone from the top - The Board of Directors and the Leadership Team are responsible for defining the institution’s core values and risk culture, and their behaviour must reflect the values being espoused. The company's leadership should systematically develop, monitor and assess its corporate culture.
  2. Accountability - Effective risk management requires staff at all levels to understand the core values of the company's risk culture and its approach to risk, be capable of performing their professional roles and be aware that they are held accountable for their actions in relation to their own risk-taking behaviour. Employee acceptance and support to risk-related goals and related values is seen as essential to "culture".
  3. Effective Challenge - A sound risk culture promotes an environment of healthy devils advocacy in which decision-making processes take into account a range of views, allow for the testing of current practices and stimulate a positive, critical attitude among employees and an environment of open and constructive engagement.
  4. Incentives: Performance and talent management should encourage and reinforce maintenance of the company's desired risk management behaviour. Financial and non-financial incentives should support the core values and risk culture at all levels of the financial institution.

The FSB has made it clear that looking at each indicator in isolation will ignore the multi-faceted nature of risk culture and reserves the right to "read between the lines".

3. Why who you are matters more than what you sell.

Unfortunately for Olympus, we learned from the latest China RepTrak100 research completed by the Reputation Institute, that who you are matters more than what you sell.

While the quality of your products/services is an important driver of corporate reputation, its relative weight has been decreasing over time (currently explaining less than 17% of your overall reputation in China).

The results show that in 2016 in China, the Enterprise drives 60% of a Company's reputation and the product drives 40%. This is consistent with 2015 results also.

In fact the biggest difference in the relative importance of each reputation dimension comes from Leadership. In the Reputation Institute's Global and US studies, Leadership, while important, is relatively less important than all other dimensions. In China, by contrast, Leadership is one of the 3 most important dimensions. To illustrate the power of Leadership in determining your overall reputation in China, consider another striking pattern: out of the top 50 scores in Leadership, only 2 companies are Chinese. Perhaps unsurprisingly, those 2 companies are the ones that do most of their business internationally and have “imported” over the years management models and personnel.

The other biggest takeaway point is that building an excellent reputation in China necessitates excelling in all 7 dimensions of reputation.

As the full report shows, each dimension counts for at least 13% of a company's overall reputation. If Olympus wants to continue operating in China it should consider implementing an integrated reputational platform that operates across all areas of reputation and stakeholders, while addressing "who they are" (leadership, governance, workplace and citizenship) more than "what they make and sell" (products and services, economic performance, innovation).

Wrap up

Corporate scandals like Olympus will for years be seized upon as an example of a bad Japanese management system. Corporate governance gurus will propose solutions of Independent Directors, more women on Boards and suitably qualified audit committees to oversee the books, none of which are required today by law. To institutionalise change, will require a revision of the Company Act by the Ministry of Justice to ensure robust corporate governance structures and more diversity of qualified Directors.

However, to address the firm's reputation risks, it is through an understanding of the drivers of Conduct Risk coupled with addressing the 4 pillars of a strong risk culture: tone from the top, accountability, effective challenge and incentives that real change can be gained. Olympus Executives would be served well to remember that who they are matters more than what they sell in today's reputation economy.


I appreciate that you are reading my post. Here and on LinkedIn, I write about board related issues - corporate strategy, human capital, reputation risk, technology, corporate governance and risk management trends.

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For more on this topic, check out my other recent LinkedIn Influencer posts on the Reputation Risk Management agenda:

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  • Facts Everyone Should Know about Child Labor
  • Reputation Risk in Banking
  • Addressing McDonald's $39B Reputation Risk Challenge
  • Challenges for CxO's with APAC's top 10 Risks
  • Reinventing Risk for an Asian Century
  • New weapon of choice for complex global supply chains?
  • 5 steps for effective due diligence in Asia

About Leesa Soulodre:

Managing Partner and Director of RL Expert Group, an international reputation risk management think tank and strategy consulting practice and Asia Associate of the Reputation Institute. A Member of the Global Advisory Council of NY Investment Advisory Firm, Cornerstone Capital; NY and Board Advisor to Belgian PR Software firm, Prezly, FashionMatch, Korea; and US Sports Analytics firm, Autoscout. Cofounder of DiversityDirectory Asia Pacific. 

Connect: Leesa Soulodre, Managing Partner, RL Expert Group -

About Reputation Institute's RepTrak Model

Reputation Institute’s RepTrak® model is the gold standard for reputation measurement, providing a one-of-a-kind measurement of how the general public views the world’s best-known companies. The RepTrak® database is normative, examining 15 stakeholder groups in more than 25 industries and more than 50 countries for more than 7,000 companies. The 2016 China RepTrak® 100 examines perceptions of companies by the China general public based on over 26,000 ratings collected in the first quarter of 2016.

“The success of a company depends on its ability to get people to support it,” said Nicolas Georges Trad, executive partner at Reputation Institute. “In China, which is the largest market in the world, it’s especially important for global companies to establish a strong reputation. The results of the China RepTrak® 100 tell us which companies are best regarded by the Chinese general public, what drives trust and support, and how the top companies are living up to the general public’s expectations.”

The complete ranking of the China RepTrak® 100 companies can be found at

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