Bernard Ginns: Axe management consultants, says whistleblower

That was one of the insights shared by corporate whistleblower Michael Woodford during his visit to Yorkshire.

He made global headlines when he exposed a $1.7bn accounting fraud at Olympus Corporation, shortly after becoming chief executive of the Japanese healthcare giant.

It cost him his job and his family’s sense of security, but the Englishman won out when Olympus admitted it concealed investment losses and restated five years of financial accounts.

In a speech at Leeds Metropolitan University on Tuesday night, Mr Woodford shared an incredible story involving boardroom battles, suggested involvement of the Yakuza and the cultural idiosyncrasies of Japan. He describes his experiences in 2011 and 2012 as “bizarre but true”.

Just as fascinating though were the insights into the life of a multinational CEO, not least his views on professional services.

“We had a huge number of management consultants in the company,” he said. “I have a pathological hatred of them. I really do. We had all these people advising us, hundreds literally, on logistics. They had been there forever and a day.”

One of his acts was to axe consultancy contracts. He instituted a new rule: if anyone in the global group wanted to bring in a management consultant they had to seek his personal authority. In seven months, no-one did.

“I always think if these management consultants are so wonderful, why don’t they go and run companies themselves? They haven’t lived. If they had run a sweetshop they would know more about the truths of business.”

On the more serious question of auditors, Mr Woodford said he found it “extraordinary” that Ernst & Young and KPMG both failed to spot the accounting fraud at Olympus.

In 2012, Japan’s Financial Service Agency did not find any intentional acts or grave negligence by the two firms, but did say they lacked operational management systems to ensure proper auditing that would spot and flag dubious transactions.

“They had a slap on the wrist,” said Mr Woodford.

n Prince Rupert Loewenstein, a descendant of the Bavarian royal house of Wittelsbach, was managing director of Leopold Joseph, a merchant bank in the City, when he was introduced by a mutual friend to Mick Jagger in the autumn of 1968. Could Prince Rupert help the Rolling Stones with their finances?

He agreed and over the next 39 years was “bank manager, psychiatrist and nanny” to the pioneering band. His memoir of the period, A Prince Among Stones, is just out in paperback and chronicles the coming together of two very different types of people – rock stars and aristocrats – during a period of enormous cultural change.

The banking world was changing too, as recorded in an anecdote from a night of bridge at the Portland Club in Mayfair.

Quintin Hoare, club chairman, was in conversation with a guest, a hard-working young investment banker from Wall Street. Mr Hoare was taken aback at the long hours worked by the American. By contrast, his day consisted of “a few drinks and a damn good lunch... and never at this club later than 3.30pm”. He told him: “I’m the head of a family bank which started in 1672, and we have been very keen on keeping the bank in the family, so that however stupid they are, at least they can get a job.

“Studying genetics, as I always had to do out of necessity, I have realised that most of my relations are far too stupid to run a bank, and the few that are able, I teach carefully that the one thing they have to do as bankers is to lend money to people that don’t really need it at a higher rate of interest than what we have to pay for the deposit. That way, we have survived.”

Nearly fifty years on, C. Hoare & Co continues to provide banking services.