Olympus faces setback in court

Olympus Corp. lost a court battle against an employee who sued the Japanese camera maker for retaliating against him after he complained about actions by his boss, another blow as the company attempts to recover from a $1.5 billion accounting scandal.

The victory by Masaharu Hamada, rare for a whistleblower in Japan, shed light on flaws in corporate governance at Olympus. It also raised broader questions about how effective systems at Japanese companies have been in monitoring and preventing misdeeds.

Japan's Supreme Court last week dismissed Olympus's appeal of a ruling last year by the Tokyo High Court that ordered the company to pay Mr. Hamada about $27,500 in damages.

"This has been a very long battle," Mr. Hamada said in a telephone interview. "I hope this will be the first step toward better governance at Olympus," he said.

Mr. Hamada, 51 years old, had alleged that he was harassed by his boss and was transferred to a less desirable post after he reported a problem to the company's hot line in 2007. Mr. Hamada informed the company via the hot line that his boss was hiring employees from a client, an action Mr. Hamada deemed inappropriate.

But Olympus's compliance office told Mr. Hamada's boss about the complaint, and the company reassigned him, according to Mr. Hamada.

"It is regrettable that our appeal was not accepted, but we take this decision seriously," an Olympus spokesman said following the Supreme Court's ruling.

Mr. Hamada's case illuminated flaws in the systems that were supposed to ensure corporate governance at Olympus, which also makes medical-imaging equipment.

Ineffective corporate governance was also at the root of the accounting scandal last year, which damaged Olympus's reputation and sparked an overhaul of its board. Olympus had been hiding investment losses for 13 years and admitted the wrongdoing only after Chief Executive Michael Woodford raised questions about unusually large payments the company made in past acquisitions. The British CEO was fired last October, before the company acknowledged the coverup.

Two Olympus executives who were closely involved in concealing the investment losses also oversaw the company's whistleblowing hot line.

Olympus, which started its compliance hot line in 2005, was one of many large Japanese corporations to introduce such a system following the enactment of a whistleblower protection law. Olympus said the compliance office was designed to handle calls, letters and emails from employees reporting possible violations of the law or of the company's code of conduct.

Mr. Hamada said he would like to continue working for Olympus, preferably in a department in charge of whistleblowing and compliance issues. "My victory is not the end," he said. "Japan needs better laws to protect whistleblowers, and Japanese companies still have a lot of work to do in terms of corporate governance."

(Published by WSJ - June 30, 2012)