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Toshiba president to quit amid ‘padded profits’ inquiry

Kyodo, Staff Report

Toshiba Corp. President Hisao Tanaka is expected to step down to take responsibility for accounting irregularities, sources familiar with the matter said Saturday.

Tanaka’s resignation will be finalized after a third-party panel tasked with investigating the scandal releases its report as early as next week. The panel has found the 64-year-old president put heavy pressure on subordinates to achieve profit targets, the sources said.

Sources say the electronics maker may have overstated around ¥200 billion ($1.6 billion) in its group operating profits in its mainstay infrastructure-related, semiconductor, television and personal computer businesses for the five years to March 2014.

Former President and current Vice Chairman Norio Sasaki, 66, is also likely to resign as a board member over the scandal, the sources said.

Sasaki served as Toshiba president between June 2009 and June 2013, covering most of the period during which the company has been found to have padded its profits.

Toshiba has withdrawn its earnings estimate for fiscal 2014, which ended in March, and canceled a year-end dividend. It is expected to release an earnings report in August following the release of the third-party-panel investigations as early as next Friday.

Informed sources said Tanaka placed intense pressure on his subordinates to meet profit targets, potentially driving them to pad figures.

He made phone calls and sent emails to subordinates early in the morning in some cases, demanding they improve business performance, the sources said, adding that some exchanges could be taken as calling for irregular accounting.

Toshiba also called its profit targets a “challenge” or “stretch,” with the latter apparently used to describe more ambitious targets, they said.

The third-party panel formed to investigate accounting irregularities is expected to look into whether Tanaka’s predecessor Sasaki played any role in causing the scandal. Sasaki had a similar management style, and is believed to have also pressed subordinates to achieve profit targets while company president. The sources said he sometimes pressed them hard with exhortations such as, “Why can’t you just get it done?”

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  • Steve Jackman

    The Toshiba accounting scandal is just the tip of the iceberg, when it comes to financial and other irregularities within corporate Japan. Japanese companies are especially prone to commiting financial fraud due to their closed, opaque, secretive and insular corporate culture, which places a very high emphasis on deference and loyalty. Such loyalty and lack of diversity within Japanese corporations means that irregularities can go on for years and snowball before they are exposed, if ever.

    As an American professional who has been living in Japan for over a decade and have work experience in management at some of Japan’s top companies, I am always extremely skeptical of financial results and other data published by corporate Japan. Corporate fraud will be an even bigger problem for Japanese companies as they continue to lose global competitiveness and pressure mounts on them to show profits to prop up the artificially inflated Japanese stock market. As they say, I have seen the sausage being made and it ain’t pretty. Buyer beware!

    Here’s a partial list of scandals at major Japanese companies over the years:

    – Yamaichi Securities files for bankruptcy in 1997 after accounting irregularities discovered.

    – Long Term Credit Bank of Japan is nationalized in 1998 after it is found that the bank had falsified financial statements.

    – It is discovered in 2002 that TEPCO had filed atleast 29 falsified reports with nuclear safety regulators since the 1980s.

    – Seibu Railways is delisted from the Tokyo Stock Exchange in 2004 after discovery of financial irregularities.

    – Cosmetics company Kanebo ceased operating as an independent company after it was discovered in 2005 that it had falsified its financial reports.

    – Nikko Cordial Corp is fined by Japanese regulators in 2006 for financial irregularities.

    – Huge accounting irregularities going back years is found at Olympus by new British CEO Michael Woodford in 2011.

    – Financial irregularities tied to gambling discovered at Daio Paper in 2011.

    – Takata corporation is hit by a huge scandal in 2014, when it is discovered that the company had been hiding information about its defective airbags for millions of cars.

    – Riken admitted to one of the world’s worst scientific frauds, when it was discovered that it had falsified research results on STAP cells.

    – Top Japanese executives at the Japanese unit of Novartis quit in 2014 after they admitted to falsifying data on the company’ drugs.

    – Senior management resigned from Toyo Tire and Rubber in 2015 after it is disclosed that the company had been falsifying data on its products.

    – Extremely serious accounting irregularities found at Toshiba recently in 2015.