According to the BBC, securities regulators started probing Toshiba’s balance sheet at the beginning of 2015. There had been concerns that executives were setting unrealistic targets for new operations after worries that the 2011 Fukushima disaster may hit the company’s nuclear division.
While a report established by an independent panel did not specifically refer to Fukushima, it did say that pressure within Toshiba was strong in the accounting years of 2011 and 2012. Furthermore, it found that the company’s three most recent CEOs had played active roles in inflating Toshiba’s operating profit.
“Within Toshiba, there was a corporate culture in which one could not go against the wishes of superiors,” the report said. “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.”
These findings have meant that as part of a reorganisation of Toshiba’s corporate leadership, 16 high-level executives – including Tanaka, Muromachi and Sasaki – have resigned. At a media event, where his resignation was announced, Tanaka said: “I deeply apologise to all stakeholders for causing these problems. This has resulted in the largest damage ever to our corporate image.”
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In a statement thereafter, the company claimed the scandal had been going on for a long time, and that the overstatement was triple the initial estimate from Toshiba. This was “very regrettable”, said finance minister Taro Aro, who claimed that he had been trying to regain global investor confidence after the 2011 Olympus scandal.
Loizos Heracleous, a professor of strategy and organisation at Warwick Business School, explained that corporate culture in Japan is hierarchical and based on a long history of emphasis on loyalty, doing one’s best, and doing all that is possible to avoid bringing shame to one’s group.
He suggested that these values, combined with performance pressures from the market, could tempt executives to take shortcuts. Heracleous added that it could also make it difficult to ask probing questions of executives.
However, according to Tomoaki Nakamura, research vice-president at market research firm IDC Japan, said it was still surprising that Toshiba operated in the “old way of cheating today”.
Wee Teck Loo, head of consumer electronics research at market research firm Euromonitor, has also suggested that Toshiba had already been struggling with global competition.
“With the exception of cameras, Japanese firms are no longer able to compete effectively with companies such as Samsung and Lenovo,” he said. “Even without the scandals, these tech firms are losing against Korean and Chinese competitors.”
Combined with the accounting scandal, Loo suggested that Toshiba could permanently fall behind the competition.
“It should instead focus on speeding up its restructuring plans and divert its resources in consumer electronics into its core business – energy and components,” he said.
Image: Shutterstock
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