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Toshiba’s “Accounting Errors”
Summarization of Case
The 140-year-old company, Toshiba, has been involved in one of the largest Japanese scandals in years. The Securities and Exchange Commission began an investigation as early as July 21st, 2015. Toshiba granted a four-member Independent Investigation Committee to proceed with an investigation and released a 300-page report, which I use as my main resource. Questionable accounting errors have been found over estimating profits amounting to 224.8 billion Yens (1.9 billion US Dollars) between the past seven years. Further investigation shows that Japanese culture has made Toshiba an easy target for manipulation. Employees have claimed to be pressured to make such errors or altercations by top executives. Toshibas shareholders filed a class action lawsuit for the violation of the federal securities laws. Efforts in trial were deemed useless after U.S. District Judge Dean D. Pergerson relinquished the suit under the U.S. Supreme Court’s 2010 Morrison v. National Australia Bank decision. Toshiba will continue to be classified as, “security on alert” according to the Tokyo Stock Exchange and could possibly be delisted if sufficient improvements are not made to their internal control systems.
Problem Identification
There are three significant issues I would personally address if I were to attend the shareholders meeting this September in order to approve an appropriate new management team. I would walk the members through the Basic Model of Strategic Management and the SWOT Analysis would bring these key issues to light.
- Inadequate Leadership
A four-member independent committee included claims of top executives, such as President Hisao Tanaka and his predecessors’ involvement in manipulation to meet their priority objectives. Toshiba’s leadership has not met shareholder’s expectations and top management has plunged an unethical precedent into the heart of Toshiba.
- Internal Control
Top executive pressure to reach objective profits each quarter has lead to the misuse of operations, and the public’s trust. There are not proper checks and balances installed in Toshiba’s business structure to ensure that their goals are being reached by ethical means. This is a result of their leadership ability to implement a structured business environment.
- Internal Environment
Business culture is the collective beliefs, values, and attitudes of a business entity. Toshiba’s business culture was one that believed that it was ethical to change their financial statements to reflect they have met their quarterly goals, when they indeed did not. Culture is the product of leadership and routine performances that justifies actions to others within an organization.
Analysis & Evaluation
- Inadequate Leadership
The role of top management in Toshiba’s business structure needs to be reevaluated. The CEO or President has two primary responsibilities. Those are to provide executive leadership for the company and to their strategic planning process. Executive leadership sets the tone for the entire corporation. In the 300-page report on the accounting scandal provided by the Independent Investigation Committee provided several incidents of top management manipulation that embodied inadequate leadership. On September 13, 2013, Hisao Tanaka stated to Makoto Kubo SEV:
“In consideration of market expectations, perhaps the best scenario is for the DS Company’s profit and loss to be half that of the first quarter (negative JPY 20.6 billion) so that it is two digits (negative JPY 9.9 billion), so that we can record profits of JPY 100.0 billion for the entire company,” “There is something I would like to talk to you about. Although this differs a little from the policy up until now, I would like to increase the Buy-Sell Debt a bit and do whatever it takes to ensure that losses for the DS Company are no more than JPY 9.9 billion.” (Ueda, Matsui and Ito)