Hisao Tanaka, Toshiba's CEO (pictured above), was among the executives at the tech giant who handed in their resignation amid a $1.2 billion accounting scandal. Toshiba chairman Masashi Muromachi will temporarily replace Tanaka.
An independent inquiry revealed that Tanaka knew the company was falsely pumping up profits over several years -- to the tune of about one-third of its earnings. All told, eight corporate executives resigned, including the CEO, three senior executive vice presidents and one corporate executive vice president.
“The company takes the matters pointed out in the investigation report by the independent investigation committee very seriously, and will seek to establish a new corporate culture under new management and governance structures,” Toshiba said in a statement. “The entire company will make every effort to regain the trust of shareholders, investors, all other stakeholders and the public, and asks for your understanding and ongoing support.”
The cover-up started in 2008, according to the investigation. While the computer chip and PC business struggled financially, executives posted unattainable earnings estimates to spur the company to perform under “The Challenge Initiative.” When the company failed to meet the estimates, executives cooked the books.
"I see this as the most damaging event for our brand in the company's 140-year history," Tanaka told reporters at a news conference today. "I don't think these problems can be overcome overnight."
This is the latest -- and one of the largest -- financial scandals ever to hit Japan. Olympus Corp. fudged its books in the 1990s by hiding $1.5 billion. Mitsubishi Motors had a running financial scam brewing for decades that was finally exposed in 2000. Sanyo Electronics also got caught cooking its books in 2007.
"That a company that represents Japan, to be doing something like this institutionally, was shocking," Koichi Ueda, attorney and head of an outside panel of lawyers and accountants, said at the news conference.
An Isolated Issue?
We caught up with Rob Enderle, principal analyst at the Enderle Group, to get his reaction to the scandal. He told us this kind of problem occurs when there are inadequate independent controls and particularly in cultures that don’t tolerate questioning leaders.
"It's not my understanding that I gave orders for improper accounting, but the reality is that such an observation has been made," Tanaka said.
The scandal comes at a time when Japan Prime Minister Shinzo Abe is working hard to gain global investor confidence by pressing companies there to implement stronger corporate governance controls.
“We often look at these events as isolated but over the years the control structure has eroded badly in corporations and because of the downturn and layoffs employees are generally afraid to speak up,” Enderle said. “This goes a long way in saying the Toshiba issue is likely not isolated and we shouldn’t be surprised if similar problems are endemic.”
Posted: 2015-07-22 @ 10:13am PT
Why does everyone have to catch up to Rob? Is he walking THAT fast?