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Olympus Fraud Crisis Shows Value of Corporate Governance

Making board members accountable and avoiding window dressing could prevent more scandals.

Making the entire board of directors responsible for the actions of a corporation is not only good business practice, it may help deter the kind of corruption that derailed Olympus.

Bloomberg Businessweek reports that three former chairmen and three aides at the company were extremely corrupt, and spent approximately $1.7 billion to hide losses and manipulate accounting records spanning more than 10 years. The investigation that determined this also pointed a finger at auditors who failed to take action when the problems were first highlighted by an auditing firm in 2009, BusinessWeek recounts.

"The entire board should be changed as they all share the blame," Mitsushige Akino, who oversees about $600 million in Tokyo at Ichiyoshi Investment Management, in an interview with the news outlet. "The managers may have been foul, but Olympus's main business is good. If the board changes, it's still possible for the company’s shares to regain this year's highs."

In an article published last week, the source noted that "window dressing" - the practice of selling off large loss stocks and buying "high-flying" ones, according to Investopedia - is common practice in Japan. The revelation that Olympus was doing that for years has many investors worried that other Japanese equities had done the same, BusinessWeek said.