The major accounting scandal at Toshiba Corp. has led to an extraordinary situation in which eight of its 12 board members (not including outside directors) resigned to take responsibility for the padding of the group’s profits by roughly ¥150 billion in its business years from 2008 to 2014. However, it remains to be seen if the exit of the top executives — including the president and his predecessor — will change what a third-party probe described as the firm’s corporate culture behind the massive illicit accounting.

It’s also not clear if Toshiba has come to grips with the problem. In a report released on Monday, an independent panel of lawyers tasked to probe the accounting irregularities concluded that inappropriate accounting practices went on for years “in a systematic manner” in many of its business divisions based on the “involvement of the top management.” According to the panel, its probe of in-house communications at the firm revealed that Toshiba had a “corporate culture” in which the employees were unable to go against the wishes of their superiors, and determined that its top executives — president Hisao Tanaka and his two predecessors, vice chairman Norio Sasaki and adviser Atsutoshi Nishida — forced the division managers to engage in improper accounting to inflate the profits by adding strong pressures on them to meet the profit targets.

Tanaka, who apologized for the scandal in a news conference on Tuesday, still denied that he put pressure on the division managers to pad the profits, saying that he did not realize he was telling the managers to manipulate the accounting. According to the panel, profits at most of Toshiba’s major business divisions including infrastructure, personal computers and semiconductors were padded through such acts as understating and deferring costs or failing to report appraisal losses on inventories in accordance with falling prices. While Tanaka described the scandal as the “biggest damage” to Toshiba’s brand image in its 140-year history, it’s not clear if the company has a clear idea as to how to correct the corporate culture that caused the problem — which might not have come to the fore if a whistleblower had not tipped off the Securities and Exchange Surveillance Commission — and to ensure that the problem will not be repeated.

In fact, Toshiba, one of Japan’s leading electronics groups with consolidated sales of ¥6.5 trillion and 200,000 employees, had long enjoyed a reputation as a company advanced in corporate governance measures. It’s ironic that the accounting scandal at the blue-chip company has surfaced just as the Abe administration, in its bid to attract more foreign investors to the market here, is pushing for tighter governance rules on Japanese firms. A new Tokyo Stock Exchange rule introduced in June call on listed firms to have at least two outside directors on their board of directors — who are supposed to supervise the company’s management from viewpoints not tied to its inner interests and to check against wrongdoings. The TSE’s latest tally shows that 46 percent of major firms listed on its first section — more than double the figure a year ago — had two or more outside directors.

But at the time Toshiba’s accounting irregularities were going on, the firm had four outside directors. Clearly their presence did not stop the firm from engaging in the illicit acts. In the upcoming shake-up of its top management, Toshiba reportedly plans to tap more outside directors so that they a majority on the board. However, the accounting scandal raises the question of whether mere compliance with governance rules — or the presence of more external directors to the board — will make much of a difference. Doubts have also been raised if many of the outside directors at the firms — including former government bureaucrats and university professors — are well enough versed in the business of corporate accounting to be able to check against irregularities.

Toshiba’s scandal appears to provide at least one lesson about corporate management: what an obsession with profits, especially the pursuit of overstretched earnings beyond its means, can do to a company. The third-party probe showed that behind the moves by division managers to inflate the profits was the pressure from the top management to meet the ambitious targets set at the outset of the business term. In some cases, the managers, in their bid to achieve the annual target, moved up the reporting of profits that should have been posted in the following year while deferring the posting of costs and losses. Priority was placed on maximizing quarterly or annual profits over long-term profitability, according to the report.

For businesses, profits are crucial to the continuance and growth of their operations. But an obsession with achieving near-term profit targets provides a breeding ground for accounting manipulation. Other members of Japan Inc. can learn from the fact that even a giant like Toshiba is not immune from such temptations.

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