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Toshiba CEO resigns amid $1.2B false accounting scandal

As the false profit total continues to climb, Toshiba's CEO resigned today, along with two other top managers, bringing the total departures to 8 so far.

Published onJuly 21, 2015

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To say the current corporate climate in Japan is terse right now is somewhat of a surreal reality. For a country largely associated with “pure” and honest business practices, a traditional commitment to protect the tenure of the employee (at times to the detriment of the company’s own well-being) and the origin of some of the world’s most respected companies, the current scandal Toshiba has been charged with is truly mindblowing, perhaps all the more so given how the numbers in this one continue to rise as it progresses.

Toshiba has been manipulating its accounting records for over half a decade

For over half a decade now, Toshiba has been manipulating its accounting records, ultimately resulting in the fradulent reporting of a staggering $1.2 billion in false profits. The scandal, which has been wreaking havoc on everything from the company’s share price to its daily operations has reached a new milestone as the President and CEO, Hisao Tanaka resigned today, along with two other top executives bringing the total to eight departures. No legal proceedings have been filed yet. The deception was set up in order to achieve performance expectations following the Lehman financial meltdown in 2008.

Specifically, “the resignations come after a report showed that top executives set unrealistic profit targets that systematically led to flawed accounting. The accounting irregularities were ‘skillfully’ hidden from outside observers, according to the investigation.” It is likely that more resignations might occur as the situation continues to unravel. Whereas the Olympus accounting fraud scandal from a few years ago was based on a lie spun in the 1980’s, this particular case has been of a much larger nature, and a modern one at that.


Given the complexities involved, it would follow that the consent and understanding of any number of top-level executives was required, though the fact it took this long for the scandal to surface shows a highly contained situation. Many large blue-chip companies in Japan have multiple independent accounting firms auditing their books and thus it is all the more impressive for Toshiba have hidden this from so many.

While Toshiba isn’t a well known consumer brand in the Android world, the company is invested in the development of components that go in many mobile devices, including camera sensors and some specialized chips. The company is also heavily involved in Project Ara and is manufacturing some Android tablets.

While the outside world at-large might not care much about Toshiba, here in Japan it is a vital part of the economy, being involved in not just consumer electronics, but also the construction of nuclear power plants, air-traffic control systems, railway infrastructure, semiconductors and more. The very fact that it has been lying to investors – and ultimately to the very country it resides in – will likely serve as a permanent scar on its reputation, if not Japan large. As Naoki Fujiwara, chief fund manager at Shinkin Asset Management said, the issue “leaves foreign investors with a vague feeling of uncertainty toward Japanese corporate earnings…it impacts all Japanese companies going forward, and we may see a lack of buying.”

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