Question:

Based on the description in the case above, give your recommendation so that Olympus can improve its management control system!

Olympus Corporation is a Japanese company engaged in the field of optics and images such as the manufacture of cameras, microscopes, thermometers, memory cards and camera lenses. Olympus was founded on October 12, 1919 in Tokyo, Japan. While their headquarters in America are in Allentown, Pennsylvania and in Europe they are headquartered in Hamburg, Germany. Olympus also has fantastic revenues with an average annual sales of USD 10 billion and employs more than 35,000 people worldwide. The first product produced by Olympus was a microscope which was introduced in Japan in 1920. Since then, Olympus has been a provider of precision microscopes and microscopy systems for the clinical laboratory, science, engineering, education, food, agriculture, fisheries, animal husbandry and research industries. When it first opened for business in 1919 under the name Takachiho Seisakusho by Takeshi Yamashita, the Olympus Corporation was not known for photographic equipment. Instead, the company was designed to manufacture microscopes, and still today the Olympus Corporation is a world leader in the manufacture of medical microscopes and medical imaging equipment and instruments - endoscopes in particular. Olympus launched its first line of cameras in 1936, and played a founding role in the digital photography revolution. Headquartered in Tokyo, Olympus has estimated annual sales of $10 billion and employs 35,000 people. Olympus management structure regarding corporate governance (CG) practices, is not drastically different from that of Western multinational corporations (MNCs), but there are some important differences based on the themes of independence, objectivity and oversight. Olympus adopted a corporate structure with an auditor system based on Japanese Company Law. In Western multinational corporations, the hierarchy is arranged in such a way that apart from the general shareholders (who ostensibly hold the highest power), then on the other hand there is the Board of Directors (BOD) who holds the highest power, with the Audit Committee having the responsibility to report to them. In contrast, Japanese Company Law The Board of Audit is at the same level as the Board of Directors, although it has auditing authority above it. The Olympus Board of Directors has 15 members, including three outside directors. The fact that the BOD internally gave biased reports would later prove to be a source of ire for foreign investors. Interestingly, usually in public companies the ratio of outsiders to insiders should be greater, but not in Japanese companies, in fact many Japanese companies do not have non-executive independents (outsiders) in their BOD. In 2011 there was a scandal that was quite shocking so that Olympus was categorized / branded as one of the companies that had a bad management accounting system in the history of corporations in the Asian region. The Olympus scandal arose as a result of non-disclosure of management accounting information which was carried out so that the company's losses were not revealed. The way that Olympus did to cover losses by making additional risky investments, private investments and stock speculation. Olympus established a subsidiary company to sell shares that had been declared a loss and also acquired many companies, one of which was the Gyrus Group. The impact felt from this action greatly affected the economy in Japan and was detrimental to the Olympus Corporation itself. The Olympus company lost 70% of the market value which is equivalent to Rp. 5.1 trillion and also investors have less confidence in companies in Japan. Investors generalize / assume that all Japanese people obey the existing rules. The case is of course a heavy blow to Olympus and also companies in Japan as a result of this response. To improve and restore investor confidence in Olympus and other companies by carrying out preventive measures such as instilling a culture of independence / anti-bribery, firm policies, tightening company and government regulations, and also listening to interested parties outside the company's internal affairs. This is done so that such cases/scandals do not recur