The OEM overstated profits by over one billion dollars, with President and CEO Hisao Tanaka resigning after admitting he had been aware of the scandal.
Toshiba’s global headquarters in Tokyo, Japan
The Guardian reported here and here on the “biggest corporate scandal in years” in Japan, with OEM Toshiba found to have “inflated profits […] with bosses’ knowledge” by around £780 million ($1.2 billion/€1.1 billion). The revelations have seen President and CEO Hisao Tanaka resign after being found to have been “aware of the overstatement of profits”, along with predecessor and Vice Chairman Norio Sasaki.
Independent investigators looked into the company’s dealings and found evidence of the overstatement and cover-up, with “accounting irregularities involving top management”. Impacts of the situation include “the restatement of earnings”, an overhaul of the board of directors, and “potentially hefty fines” for the company. Tanaka and Sasaki were complicit in the overstatement of profits “and delay in reporting losses”, with investigators citing a “corporate culture that ‘avoided going against superiors’ wishes’”.
The investigators’ report, filed to the Tokyo Stock Exchange by Toshiba, also commented that the overstatement “was roughly triple Toshiba’s initial estimate”, with Tanaka and Sasaki setting operating profit targets “that the heads of divisions were required to meet”, later “applying pressure by hinting at withdrawing from areas that underperformed”. When the OEM’s top management presented “challenges”, staff below them “continually carried out inappropriate accounting practices to meet targets in line with the wishes of their superiors”.
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A rumoured theory for the background behind the scandal was that “top executives, worried about the impact of the 2011 Fukushima disaster on its nuclear business, set unrealistic targets for new operations”. The report didn’t mention this, but said “such pressure was particularly strong in fiscal years 2011 and 2012”, requiring “a need to carry out improper accounting on an even bigger scale, and as this was repeated, the scale of the inappropriate book-keeping also expanded”.
The Guardian pointed out that the investigation has come as Japanese Prime Minister Shinzo Abe aims to “improve the country’s corporate governance in order to attract more foreign investors”. Camera manufacturer Olympus previously covered up losses before being exposed in 2011, and Toshiba’s position as “one of the stalwarts of Japanese industry” has been “shaken”. Its stock price has fallen by 26 percent since the scandal was first reported in April, and it has “not been able to close its books” this year and “was also forced to cancel its annual dividend”.
Japanese Finance Minister Taro Aso noted that the situation was “very regrettable […] if Japan fails to implement appropriate corporate governance, it could lose the market’s trust”. Toshiba’s Chairman Masashi Muromachi will take over from Tanaka, while Sasaki is also set to resign his position.