Toshiba hit by balance sheet scandal

The chief executive of Toshiba and seven other senior executives have resigned in a deception scandal that the safeguards imposed by the Japanese government this summer are intended to prevent.

Hisao Tanaka, who was also president, quit after an independent panel appointed by the home-electronics-to-nuclear-power Toshiba group showed that operating profits from 2008 to 2014 had been overstated by 151.8bn yen ($1.23bn, £780m, €1.2bn).

The others who went included vice-chairman Norio Sasaki and senior vice-president Atsutoshi Nishida, a former chief executive.
A penitent statement from Toshiba read: “It has been revealed that there has been inappropriate accounting going on for a long time, and we deeply apologise for causing this serious trouble for shareholders and other stakeholders.”

The dishonesty began to emerge early this year when securities investigators inspected the balance sheet and found executives had set unrealistic targets for new operations after worries that the company’s nuclear division could suffer through the 2011 Fukushima disaster.

False accounting ensued and individuals felt compelled to acquiesce in the lying.

The investigators reported: “Therefore, when top management presented ‘challenges’, division presidents, line managers and employees below them continually carried out inappropriate accounting practices to meet targets in line with the wishes of their superiors.”

Regulators are now thought likely to review Toshiba’s book-keeping, and industry observers predict that the US Securities and Exchange Commission may prosecute.

Tanaka himself admitted that the company would have to change its practices.

The remedy may be forced on Toshiba by newly adopted government measures under which boards must have at least two independent directors. In addition, the new codes encourage investors to seek more details from directors and the Tokyo Stock Exchange requires companies to be transparent.

In future regulators must convince the world’s markets they are watching Japanese corporations and that companies’ own governance is robust, commented Loizos Heracleous, professor of strategy at Warwick Business School.

He said: “Over the last decade corporate Japan has been making efforts to move towards globally accepted principles of corporate governance such as transparency and board independence.

“However, challenges remain, particularly with issues such as board composition, where there are fewer outside directors than in other developed markets, and there is yet some way to go.”