Case Study: Corporate Failure: Toshiba Accounting Scanda

853 Words 4 Pages
Hizmete Özel / Confidential

Hizmete Özel / Confidential

MGMT 512: Corporate Governance

Sultan Orman: 0055134

Corporate Failure: Toshiba Accounting Scandal (2015)

Summary of the Case: Everything began with the results of an independent report created by a

committee of people consisting of independent accountants and lawyers in July 2015. The CEO of

one of the leading companies in electronics and technology sector, Toshiba from Japan, announced

that he is resigning of his position due to mis-reporting –over-reporting – the profits of the company

for the last seven years (between 2008 and 2014). The amount was nearly $2 billion as admitted by

the quitting CEO, Hisao Tanaka1. In the news conference, Tanaka, former CEO
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Sasaki and Nishida stated their resignation as well2. Though they all know about this overstatement,

they chose to keep quiet.

The failure caused decline in stock price of Toshiba after May 2015 and has its minimum value in

February 2016 (from 505JPY to 204JPY) 3. Besides, the foreign investors decided to sue the company4.

The failure had great negative effects to the government and reputation of Japanese companies in

addition to Toshiba itself. The fact that the presence of these types of failures makes the credit rating

of Japan to downgrade in a market where they try to set up a trustable environment as mentioned

by Japanese finance minister, made the high level executives resign in a more quicker process2.

In the report of the independent investigation committee, it is stated that the accounting

manipulation is done by several ways, like pushing back the charges and losses and taking the profits

earlier5.

Corporate Governance Issues: The reasons of the failure are based on several corporate governance

issues. Though Japan is trying to establish corporate governance for all of its international and
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Rather than auditing, the internal audit division provides consulting

service to the management. There are members from the audit committee who are from

former CFO team6.

Actions taken: The report of the independent investigator committee included recommendations to

Toshiba to prevent the re-occurrence of these failures as well as their findings on the misreports.

These are mainly related to changing the corporate culture and change of the internal audit system.

Besides, in addition to official internal auditors, to enable each and every employee to audit the

company, the committee advised to create an open environment5. The Japanese government set

minimum requirements to establish corporate governance in the international companies stating

that minimum two of the members of BoD should be from outside and independent7. In accordance

with this Toshiba considers hiring half of the directors from outside2.

The actions taken by the government and by Toshiba are useful in establishing an independent BoD.

Besides this the management of Toshiba should be selected so that these members are capable of

their positions (e.g the audit committee).

Reference

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