How Olympus Should Refocus

In the early 20th century, before Olympus began making cameras, it built microscopes. That’s appropriate because one can easily imagine Peter Drucker casting a close eye upon the Japanese company.

Indeed, during Drucker’s long consulting career, corporations that included “GE, Coca-Cola, IBM, and Intel were put under his microscope,” journalist Rhymer Rigby notes in his new book, 28 Business Thinkers Who Changed the World, “and he was always ready to offer frank advice for where they were getting it wrong.”

Olympus, for its part, has certainly gotten it dreadfully wrong. In October, the company fired its chief executive, Michael Woodford, after he had sharply questioned his colleagues about what turned out to be a decades-long scheme to hide more than $1.5 billion in losses. Olympus finally acknowledged the financial impropriety, and the company chairman with whom Woodford had tangled, Tsuyoshi Kikukawa, was forced to step down. Yet top officials continue to insist that the British-born Woodford—one of the few foreigners ever to run a major Japanese company—got the axe not for making a stink about the fraud, but because of his own “autocratic behavior.”

In the latest twist, Olympus announced this week that it plans to hold an extraordinary shareholders’ meeting in March or April, at which point new management could take charge. “We need to give this company the leadership it deserves,” said Woodford, who is busy lining up shareholder support so he can reclaim his old job.

But what kind of leadership is that? It’s undeniable, of course, that even if Woodford qualified as an autocrat—and some co-workers have, in fact, characterized him as a peevish and controlling executive—his defects hardly compare with the incredible deceit exhibited by others in the company.

Integrity Begets Trust

Besides, as Drucker put it: “To trust a leader, it is not necessary to like him. Nor is it necessary to agree with him. Trust is the conviction that the leader means what he says. It is a belief in something very old-fashioned called ‘integrity.’”

Hundreds of Olympus rank-and-file workers have signed petitions seeking Woodford’s return, and the Japanese public seems firmly behind him. “If I were to hope for just one more thing, it would be the chance to work under Mr. Woodford,” a recent hire wrote on an employee website. “He has demonstrated … that he is the best-suited person to rescue the company and lead its revitalization.”

In spite of Woodford’s popularity and record of operational success during his 31 years at Olympus, it is worth asking if his tendency to forcefully press his opinion on the smallest of matters—down to what kinds of personal items employees can keep on their desks, as described this week in a Wall Street Journal profile—is really the best way to manage any company.

Drucker very much appreciated leaders who pay attention to the details. It’s important to create an organizational culture in which “we either do things to perfection, or we don’t do them,” he wrote. But the idea is to inspire every employee to adopt such a mind-set on his or her own—not to try and command it from on high. “Start empowering them by making sure they are trained properly to do their jobs, and then give them responsibility to do it,” Drucker counseled. “Provide room for failure.”

Rely on Firing-Line Managers

For instinctively heavy-handed executives, this can prove difficult. In the end, it’s the only approach that makes sense. “The managers on the firing line,” Drucker wrote in Management: Tasks, Responsibilities, Practices, are “the ones on whose performance everything else ultimately rests. … Viewed structurally and organically, it is the firing-line managers in whom all authority and responsibility center; only what they cannot do themselves passes up to higher management.”

Author Jeffrey Krames recalls Drucker telling him about “naturals”—“those talented individuals who are perceived as born managers.” Among other things, “naturals do not micromanage people to death,” Krames explains in his 2008 book, Inside Drucker’s Brain. “They know that intimidation is stifling and counterproductive, particularly when it comes to creativity.”

Interestingly, it’s the Japanese who traditionally have found a way to blend authority coming down from the top with input bubbling up from the bottom. “To a Westerner, an organization can either be autocratic or democratic, but the Japanese organization is both,” Drucker wrote in a 1979 essay. “In every Japanese organization from ancient times to the present, the word of the chief has been absolute law; the chief could order a retainer to commit suicide or to divorce his wife. And yet no chief could make one step without the consent of his retainers, and indeed without active participation of the clan elders in the decision.

“Similarly,” Drucker added, “today the top people in a company or a government agency are obeyed without argument or reservation—and yet every decision comes up from below and is an expression of a general will. Every Japanese organization is in Western terms both an extreme of autocracy and an extreme of democratic participation.”

Many already see Woodford as a hero for blowing the whistle on a terrible scandal. Should he once again make it to the top of Olympus, he will have another chance to prove he’s something else, as well: a great manager—and not a meddler.