Canadian Manufacturing

Toshiba chief resigns amid US$1.2B doctored accounts scandal

Latest instance of cooked books highlights Japan's struggle to improve corporate governance



TOKYO—Toshiba’s chief executive resigned Tuesday to take responsibility for doctored books that inflated profits at the Japanese technology manufacturer by 152 billion yen, or US$1.2 billion over several years.

Toshiba Corp. acknowledged a systematic coverup, which began in 2008. Various parts of the Japanese company’s sprawling business including computer chips and personal computers were struggling financially, but top managers set unrealistic earnings targets under the banner of “challenge,” and subordinates faked results.

On top of its struggles in electronics, Tokyo-based Toshiba’s prospects in nuclear power, one of its core businesses, were shaken after the 2011 Fukushima disaster set off public fears about reactor safety, making new nuclear plants unlikely in Japan. All 48 of the nation’s working reactors are now offline.

Bowing deeply before flashing cameras at a news conference, CEO Hisao Tanaka kept his head lowered for nearly half a minute in a gesture meant to convey deep shame and contrition. Tanaka’s predecessors, Norio Sasaki, now a vice chairman, and Atsutoshi Nishida, an adviser, also gave up their posts.

“We have a serious responsibility,” Tanaka told reporters. The company will need to “build a new structure” to reform itself, he said.

The scandal highlights how Japan is still struggling to improve corporate governance despite recent steps to increase independent oversight of companies.

Loizos Heracleous, Professor of Strategy at Warwick Business School in Britain, said corporate Japan is still lacking in areas such as transparency and board independence compared with the global standard.

“Japanese regulatory authorities will need to reassure the markets that they are casting a watchful eye over Japanese corporations,” he said in a commentary.

Toshiba has repeatedly apologized to shareholders and customers. It has set up an outside investigation group to analyze why the scandal happened and propose what needs to be done to prevent a recurrence.

The inflation of profits to meet targets was carried out not only on one or two projects, but across the board, sometimes because the projects weren’t even breaking even, according to the report of an investigation.

“There was intense pressure to produce results under the challenge initiative,” the report said. “So employees felt cornered into resorting to inappropriate measures.”

Tanaka will be replaced by Masashi Muromachi, chairman of the board.

Other systematic coverups at big-name companies have surfaced in Japan over the years. Unlike some Western accounting scandals, those in Japan, including Toshiba’s, did not result in any enrichment of individual employees.

Instead, workers collaborated to “save face” for the company, such as hiding defect reports at automaker Mitsubishi Motors Corp., which surfaced in 2000 but had been going on for decades. Another example of questionable accounting was at electronics maker Sanyo Electric Co., which surfaced in 2007.

Toshiba shares were up 6 per cent, recovering recent losses, as investors took the resignations as a sign the company might right itself.

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