Olympus Accounting Scandal: Ethics, Egoism, and Governance

Introduction

The Olympus corporate governance and accounting scandal is — and should be considered — one of the largest business scandals in the history of the modern world. It stands right alongside Enron and, in some ways, surpasses even the exploits of Enron and Bernie Madoff in scope and duration. This paper examines the Olympus scandal through the lenses of utilitarianism and egoism, and considers what could or should be done to prevent such malfeasance from occurring again. While some corporate-related laws are moderately to highly effective at stopping wrongdoers, it is impossible to stop them all without imposing restrictions so heavy that they burden those who are acting honestly.

SOX and AICPA Regulatory Frameworks

Several legal, sociological, and corporate concepts are relevant here. Two of the most prominent are the Sarbanes-Oxley Act (SOX) and the AICPA Code of Professional Conduct. SOX was enacted as a direct response to the Enron scandal. It contains multiple aggressive provisions addressing accountability, procedure, and conflicts of interest. For example, company executives must personally vouch for the accuracy of the balance sheets and income statements they submit. This requirement may cause some individuals to think twice before committing a wrongdoing, but it does not guarantee they will refrain from trying.

The tenets of the AICPA — public interest, trust, and principle — operate in a similar spirit but are also not universally effective. Furthermore, the Olympus case demonstrates that neither independent board members nor a change in leadership is sufficient to stop a company from engaging in improper fiscal behavior. Sarbanes-Oxley may deter some, but it does not deter everyone, and the compliance costs imposed on firms subject to the law can be stifling, if not crippling (SEC, 2015; AICPA, 2015).

Utilitarianism and Egoism in Corporate Governance

Looking at higher-level principles, one concept that emerges clearly is egoism. When a person leads a publicly traded company, it is assumed and demanded that they subordinate their personal interests to the will of the board, the stakeholders, and the public. When executives take out large personal loans, misrepresent losses or income, and otherwise act for self-gain, they are plainly engaging in egoism rather than utilitarianism or stakeholder-focused decision-making. This distinction involves three different entities: the stakeholders, the company's leaders, and the general public. While egoism is broadly regarded as ethically problematic, there will always be some degree of it in executives who are motivated by advancement and income maximization. A person driven to succeed who never seeks to break corporate governance or accounting rules is not doing anything wrong — at least not intentionally (Shaver, 2002).

Even when egoism is not the dominant factor, balancing the interests of stakeholders against those of the broader public can be genuinely difficult. Many critics today decry the profit motive of corporations and note that the pay disparity between chief executives and the lowest-paid employees has grown substantially. These observations do raise legitimate ethical questions about how Olympus and companies like it conduct their business, and what laws should exist to prevent abuse. However, clamping down too hard on behavior that is typically lawful and proper risks inconveniencing those who have no intention of doing wrong (Shaver, 2002).

This raises the question of what responsible business conduct looks like in general. Utilitarianism holds that actions should be pursued in ways that produce the greatest benefit for the greatest number of people. Some argue this means providing compensation or benefits above industry standard. Others contend it means lowering prices so more consumers can afford a product. Of course, the primary goal of a business, in the eyes of many, is to generate profit — and economists would note that setting prices too low can be just as problematic as setting them too high. For example, if an average mid-range camera retails for $200, a temporary sale at $180 during the holiday season or to clear excess inventory may be reasonable. Similarly, if the market price rises to $225, Olympus would be wise to follow that trend rather than resist it. Ferrari automobiles may cost far less to manufacture than their sale price suggests, but other elite automakers operate rationally within the price range appropriate for their market segment (TAMUC, 2015; Utilitarianism, 2015).

Conclusion

Corporate scandals are not going away anytime soon. Thieves, egotists, and other immoral people will always continue to plot and scheme. Any company that wishes to avoid a fate resembling Enron's or Olympus's must recognize that honesty is essential. Deceive an investor once, get caught, and the entire structure will eventually unravel. That is precisely what happened with Olympus — eventually — and the charade was shut down.