good afternoon welcome to capital account i'm laurin leicester here in washington d.c. these your headlines for wednesday december fifth two thousand and twelve while the world how it's economic cast on the u.s. fiscal problems or the drama in europe what might be we be missing elsewhere say japan the former c.e.o. of the japanese company olympus michael woodford is here he went from thiel level executive to whistleblower he's here to talk about the one point seven billion dollar fraud he exposed as well as what he thinks about water and your business practices and economic help in japan and president obama says he'd love to have a business leader for his economic team this term but he says it is just so hard to recruit why. the confirmation process has become so miserable

so drawn out. now it may not get as much play but how does senate confirmation get in the way of properly policing the financial sector will have a reality check plus former senator alan simpson has been a guest on the show and he has a new message for millennia old. used to gramley your breakfast in your first world problems and giving on you tube show you can see gangnam style. we will talk more about what's behind the debt related directive in a loose change let's get to today's capital account.

the company olympus if you're not familiar many are but it's the japanese manufacture of medical equipment and cameras like these. soldiers are closer they're getting. well maybe the former c.e.o. got a little too close but it was big news back in the spring of two thousand and eleven when michael would further westerner was made president of the company the first westerner to really climb the ranks from within a major japanese corporation then in october of two thousand and eleven he became the c.e.o. of olympus in addition to president but just two weeks later mid october of last year he was unexpectedly fired by the board now according to the financial times a limp is portrayed him as an outspoken westerner who diverted from the rest of the management team but michael woodford had a much different story he exposed to the press the mismanagement and accounting

cover ups he discovered at olympus shortly thereafter the company admitted to hiding losses and we saw this. the japanese camera a medical equipment maker limpness involvement in one of japan's biggest corporate scandals he faced up to ten years in prison. meanwhile wood for his part became the first c.e.o. of a global multinational company to blow the whistle on his own company and he then says he fled japan fearing his life michael woodford is here to tell us about and the broader issues we should be aware of he is former president c.e.o. of the land base and he's written a book about all this you can see it there it is called expose your and he's going to expose to us what perhaps a limp is serves as a lens into corporate culture to start i just have to get all those horrible little metaphorical figurative language to bits in there but thank you for being here it's my pleasure so let's start you know going back

a little bit for our audience that is that vermilion with this story and hasn't read your book yet i set it up a bit but let's back up because when you're at this company you were trying to get to the bottom of these bizarre mergers and acquisitions these financial situation and again this money that was going to the cayman islands and then you were fired then you went public so maybe you could just back up and kind of tell us what you found in exposed and then why you feared your life. i mean this came to light in july of last year when frank which is a very small niche publishing outfit in japan. made allegations that it limpets had bought three companies a plastic plates company from microwaves a face cream company. recycling company. which you know as a high tech manufacturer of cameras a medical equipment that wasn't caught but what was shocking was the company at that time allegedly and it turned out to be true had spent

a billion dollars on three companies with no turnover and in addition to that they paid advisors a fee of seven hundred million dollars. to the cayman islands for an acquisition the company made two years earlier both of the transactions totaling one point seven billion dollars completely illogical inexplicable. so what was driving what were they hiding that you found out i mean we don't know all the details and we never will but basically olympus has made very large losses going back two decades when the bubble economy of japan burst they were left with securities on the books of value book value and changes in japanese accounting rules would have meant they would have had to realize those losses and therefore they did what's called the bashing in japanese to make it fly go away in the used secret of balance sheet cheap vehicles to buy the assets at the book price but then they had to pay

back the off balance sheet vehicles with real money and that's when the fraud came about these two transactions and now probably before we get into the broader issues probably some of our audience might be saying ok this guy came out with these revelations after he was fired why didn't he go to the authorities when he was c.e.o. if he wasn't getting his message across why did he come out later to the press to the financial times after he was fired i don't know if you've lived in japan or spent any time the i have not no i mean japan is truly an alice in wonderland works to a different set of rules to anywhere else on this planet i did try six letters to my board colleagues pleading begging them to bring in forensic accountants and in ninety six later i asked for the resignation of the churman power and of the vice president mori and i asked my other board colleagues not to put the fact that i was

a guy ging a foreigner before the facts and put the company before any personal loyalties but they took no notice and from. in a very brutal way as well. then you know i wanted the truth was to come out and the way things work in japan and i asked three hundred journalists the same question at the foreign correspondents club in tokyo in november what would have happened if i had gone to the japanese authorities would they have acted and only three people put their hands up to say they would so to me it was essential that overseas scrutiny and oversight and the like these lights in the studio shone on what is going on because of the scandals in japan haven't resulted in the conclusion you would want so then what is what are you really saying because they you know this company olympus it had the japanese arm of global auditors ernst and

young and k. p. and g. were its auditors it's a multinational corporation where most people would probably think that there is some level of the same scrutiny when you're at that level you're saying japan is this alice in wonderland so what is it specifically about japan about the culture or that the corporate structure that you're really criticizing and saying is the problem let me give you two two examples that show you how different your plan is. the japanese press mainline press totally ignored frank they didn't report it or you know it's extraordinary that if it was a dow jones company or a company on the scene in london or in hong kong or in moscow or wherever it is if of detail the allegations are put forward then the media will be on to that company's press office and investor relations department but in japan the mainline media just didn't didn't cover it despite this substantiated allegations they just didn't question and it became very evident that in japan the media is so censoring

you do not attack a nikkei listed corporation you just don't do it. and that's different that's completely different to other developed capitalist market well i want to ask more about this because i haven't been to japan i haven't experienced what you've experienced but just to give you context i we covered the m.f. global scandal extensively on this show and now it's a scandal where obviously a very prominent c.e.o. former goldman sachs c.e.o. former u.s. official elected official a bundle over obama the president of the united states and we didn't see a blackout from the u.s. mainstream media but you only saw it covered when it was a major development there were many stories that even recently you know kind of there were very like oh what is john cores i'm going to do next like his plight when when this guy was at the head of a firm that stole one point six billion in customer money you know so what really is different here i mean you have to making these allegations

north of you know the m.f. global and how that was covered by the u.s. press but it was covered it was covered in the financial times and many other papers it was a total and deafening silence by the japanese media nothing was covered and even when it was out it was in the wall street journal the new york times the financial times thomson reuters bloomberg the press conference. switch they gave in japan parts of the japanese media were acting like the press office of olympus it was utterly bizarre just extraordinary i mean let me give you another example of i want to japan this is so different four weeks after i'd been fired the the stock price of a limp wristed fall in eighty one point five percent seven billion us dollars have been struck off the value of that company yet the japanese institutional shareholders made not one word and have never done so not one word of criticism at the time of the incumbent board i was the ex president i was still

a director of the company the board had been deemed by a supreme court judge in japan as rotten to the core board of yesman yet they still wouldn't speak out against the incumbent board or offer me a word of support that that would happen nowhere else on the planet i mean what's their future surely duty they just weren't creatures it's japan is like an incestuous club corporate japan works to its own interests not about right or wrong or shareholder value they look after their own they really do then or if you have any concerns more broadly about corporate governance and other corporations more broadly in japan i'm sure you will find lots of this is in japan i mean when the. university professor reported on the focus shimon disaster to parliament he said there were four faults it was a it was a disaster made in japan because of cultural reasons a blind obedience

a complete fixation with hierarchy and lack a willingness to challenge in question and you can take that template and you can put it over corporate japan in the same culture and if you work there and spent time there it is disturbing to see how the population is so passive and so dos subtle and i love the country i went on holiday there in october i have some. wonderful friends but with the something gone horribly wrong with the way the leaders of its corporations work there's no takeovers even domestically no hostile takeovers come visiting all out they need to get kaffirs have no i'm only kidding with you but but and on a serious note we have seen frauds all over the world i mean in the united states of course and ron and a dollar amount was much larger than the fraud that you uncovered at allin paris we have seen m.f. global as i mentioned we have seen the library scandal more recently with possibly more than one bank involved in our banks colluding we've seen one insider trading

scandal after another in the united states so what is really different about this in terms of the fraud that was committed or does this just kind of fit right in in terms of the fraud we see committed globally i mean you know fraud will take place in the u.k. in america in australia everywhere in japan there's no there's no fundamental difference powerful people in positions of control will do things the difference is one city's out once it's disclosed. that have been in new york or in london within a matter of hours of the financial times article you would have the non-executives and the institutional shareholders ensuring that those people running the company had to step down immediately in japan they lasted six months nineteen directors at the time former directors and six serving directors including the person who'd taken over from the chairman were tacky yama stayed in office. it's just extraordinary it just can happen elsewhere and i describe this in my book in great

detail about the way you know it operates in the way things are done and i just want to ask you to pas right there what we're going to go to break quickly we're back in a couple minutes and have more with you i want to talk more broadly to about the japanese economy and comparisons that have been made between the u.s. and japan more as michael woodford former president and c.e.o. of olympus author of exposure in just a moment. still ahead from senate confirmation high jinks to senator alan simpson a video about the old coots cleaning out the treasury has or has words will cover both after the break but first your closing market numbers. wealthy british soil the sun. rises.

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crime. good good. good . welcome back our guest michael wood for the exposed fraud at the japanese firm a limp this live to tell about it he's here on our set giving us the lessons that he feels not pulling any punches when it comes to japanese corporate governance and

now i want to speak more broadly to you about the economy because you you worked there you were in a ploy of olympus for thirty years i know that entire time was not in japan but you spent years there in terms of corporate governance you called it an alice in wonderland experience but i'm i'm wondering what your assessment is macro economically because we hear about japan it's government debt but but demographically it's an aging population its birth rate is declining it's a country that has entitlements that are that are given i'm curious what you see macroeconomic. i mean i think. i mean i'm in new york at the moment and everyone's worried here about the fiscal deficit. in europe because of the euro crisis but japan when the dog starts barking that he won't be barking he'll be howling the japan has got sovereign debt quibbling to two hundred thirty five percent of its g.d.p. and it's growing. japan has lost two decades if you just look at its consumer

electronics sony has lost ninety three percent of its value since the year two thousand show issued a statement a few weeks ago saying it's not sure it will survive and had to get four point five billion dollars of money from two of its banks which will last through only two panasonic you've just lost ten billion dollars all three companies the debt is not considered junk rated as jones so you're very bearish broadly on japan it's interesting because maybe not from the corporate side but in terms of the government side many economists come on this show and say the u.s. is becoming japan in terms of last decades in terms of its debt let me just play a clip and i'll come back to you. but i think you're going to see the same structuring lack of progress that japan has had for today ok so it's the japan thing for us to learn from japan's experience with the japanese that understood their crisis was going to go on for a quarter of a century and that they were going to spend trillions and trillions of dollars they

wouldn't boys did all that money paving the japanese countryside with cement and building bridges to nowhere. so the first economist was saying the u.s. is on that path of low growth stagnant growth increasing government debt and the second guy was saying hey we need to avoid the path that japan went on so either way people are comparing their us to japan story what do you think of that comparison i really don't think there is a comparison i mean look look at the google facebook look at apple compared to sony i mean. america is still an entrepreneurial society look at the legacy car manufacturers which are coming back america apparel industry is recovering america is a dynamic vibrant economy where innovation takes place all the time only in japan japan post the second world war showed what it could do they were innovators they led the world in production engineering and manufacturing but no good manufacturing is nothing special you can find in any country around the world it's been the science

of it's been formatted you need a society with creative tensions people prepared to think out of the box and create things in japan this leap walking to oblivion. there's no promotion of young talented people everything is based on age hierarchy they ignore their workforce women now finding women in the boardroom you won't find hardly any women in middle management level are i well mr word for it i appreciate you giving us that perspective because when people talk about japan they're probably mostly talking about the public side in the government debt now sort of thing in the low growth the debt overhang so interesting to hear that corporate perspective i appreciate you being on the show thanks for telling us your story michael woodford. president c.e.o. formerly of olympus author of a book all about his experience exposure. we

have a reality check tonight u.s. president barack obama may be a song yesterday telling bloomberg he would love to choose a business leader for his economic team but he said the hardest thing about getting talented executives to step up to the plate is that the senate confirmation process they have to go through is just so miserable. for successful folks to want to put themselves through that process. you know a lot of folks are just shying away you know you have to put your life on hold you may end up getting caught up in some partisan battle up on the hill that has nothing to do with your own qualifications. and indeed you may remember the embarrassing revelations that came out during timothy geithner's confirmation for treasury secretary when it came out he failed to pay some of his taxes and not only

that this is what he said when he was asked if he'd use software to prepare his returns i did or you did or gary which brings. only answer the questions are what i want these are my responsibility not to not to touch off your responsibility but i used. my returns. and got a lot of play we still remember it so well so high level cabinet positions get plenty of attention but in the less sexy less talked about world inhabited by financial regulators the senate confirmation process can create a litany of problems too as former f.d.i.c chair sheila bair points out in her book by statute the heads of all major financial regulatory agencies have to be confirmed by the senate which often amounts to no official leadership for long periods of time or leadership that just stressed out not functioning well because the confirmation is hanging over their head and just for some examples to give you context so after obama was nominated to his first term despite the fact that fannie

and freddie were in such trouble their regulator he didn't submit a nominee to head it until late two thousand and ten and in fact there still is no head that is confirmed and no domini was submitted to the o.c.c. which is the major bank regulator until late two thousand and eleven despite all of the problems in the banking sector not to mention a single senator can hold up a nomination for months and on a personal note bear cites an anecdote from her time in the bush treasury where a senator from bush's own party held up several confirmations because he wanted a change in trade policy so it was just political he wanted concessions from the administration now it wasn't until earlier this month event that the senate confirmed a chair for the f.d.i.c had no official leader since bear herself stepped down in july of two thousand and eleven now she thinks that this process needs to be reformed we say added to the list of inefficiencies we see when it comes to the agencies or regulators were hoping will do

a better job policing the banking system or added to the list of reasons you should take charge of your situation and protect yourself financially because sounds like no one's going to do it for you and that's a reality check. let's wrap up with loose change dimitri kofi anan just remember when alan simpson was on the show former senator one half of simpson bowles led to believe one of our yeah i got talking on the phone afterwards and i can say one thing guys he is much less sensitive but i don't know any of them. well in rare form and in his best form he has a new video out ok he's reaching out to the millennial generation via you tube to

spread the word about his kick the can kicks back campaign take a lot. sign people up on this be three people week rather grohl and don't forget take part or get taken apart board the usual clean out the treasury before you get there. ok did you hear him those old coots will clean out the treasury before you get there i mean this is just so funny we had to play a clip is there anything you want to say about it while you go put on the girl just like when you put that in your pipe and smoke on. all these expressions i would love to see this goes for secretary but i don't think. probably maybe but i'll tell you he brings a certain straight talking to washington that you just rarely see and it's just really refreshing and a flamboyance of a different kind i mean. he would describe before we turn into a total love fest which you know i'm sure he has you know has his share of hypocrisy on his record from when he was a senator they all do so let's move on to the next story because we have. some new

developments in the front when it comes to creepy technology ok we're used to companies by now tracking our online habits take a look. at facebook approaching a billion members and in the fight to monetize the business the company is finding ways to leverage its greatest asset information on its users in this latest experiment to social media giant is tracking users based on profile e-mail addresses phone numbers and surfing habits online. ok so more alarming developments in this world so microsoft and arise and both filed patents that would. help them to observe what's going on in your home when you're using their their hardware i guess or software to to get show you movies or whatever so microsoft has registered a pattern that would allow the connect to detect how many people are in a room and stop playback on a movie if it sensed that that more people than were allowed by copyright were in the room and even more creepy varieties in has a patent that will be filed for

a patent that would allow for ambient action by a user to be detected during a presentation of media content and then during the commercial break they could run ads based on whatever action you're performing this is really terrifying to me because i don't think people realize that there could be these kind of really very big brother kind of things going on with the new technologies that are helping you to get cable t.v. or movies or whatever those boxes are that everybody has and it was there were there was the screen that you could see but now you've got all these different devices that are collecting data on the user more to actually just get the data for you like i've been going nuts on instagram recently get your upset all the problems go and they're all they go to the server of them and have that information available make could they could cross correlate that with other information so it's true and it's what are you going to do it's a difficult world so i was there yesterday everyone that you have been taking pictures of in the news or you can because now they're being tracked it was old

truck i've been working with google right. always knew you were a mall all right let's leave it at that that's all we have time for thank you so much for watching be sure to come back tomorrow and in the meantime you can follow me on twitter you can like our facebook page watch us on you tube or in h.d. on hulu and from everyone here have yourself a great. miss

him. already.