Company Schedules Press Conference Tuesday; President Expected to Resign
The Japan Times is reporting today that investigators looking into potential accounting malfeasance at Toshiba Corp. for the five-year period ending March 31, 2015 have released summary findings that confirms that the company management was directly involved in misreporting profits. The news exploded in Japan, as one of its most venerated companies has lost all credibility.
The company has scheduled a press conference for Tuesday in which it is widely anticipated that Toshiba’s President Hisao Tanaka will resign.
But the damage to the company, doesn’t end with Tanaka…see more…
First reported in April, Toshiba had appointed a special committee to look into what it called “possible problems” with its accounting. The issue revolved around the way cost and profit forecasts for large projects were booked. Although the company didn’t say much more than that at the time, the issue was darker than it initially looked – as it appeared that the company might be fudging numbers to make profits look better than they actually were.
Press reports out of Japan say that not only will Tanaka resign at a press conference the company has scheduled for Tuesday, but Vice Chairman Norio Sasaki, President before Tanaka, is considering resigning as well. This move may make sense since Sasaki was President during the period of the investigation and is directly implicated as well.
Three Top Executives Consider Resigning
Not only that, but Sasaki’s predecessor, Atsutoshi Nishida, is said to be considering resigning from the company also. We reported last week that more than half of Toshiba’s Board of Directors is also expected to be pushed out as the company will try to reestablish its credibility with all new management.
Just the first, relatively benign announcement this past April caused Toshiba’s stock to have its largest one-day drop in more than a year. Investors smelled something foul. This kind of announcement from one of the most professionally run companies in the world just didn’t sound right.
Billion Dollar Profit Restatement Looms
In May, word began to leak from the investigation that the company may have to amend previous financial filings to restate profits. Investors found the situation quickly moving from bad to worse. And although the U.S. media has largely ignored the matter, the Japanese press have been regularly reporting on evolving developments.
The company’s management in May, estimated the potential write-down of profits to be around ¥54.8 billion, but the findings released on Monday set the amount at ¥151.8 billion ($1.2 billion) – almost triple the amount of the company’s forecast. The Nikkei also notes that in addition to this, the company faces “potentially hefty fines” from the country’s stock market regulators.
A Defective Corporate Culture
After beginning activities in April, investigators quickly deemed it necessary to expand the scope of the investigation, covering every reporting division of the company. According to the summary findings released on Monday, investigators have concluded that Toshiba management engaged in both putting “undue pressure” on underlings to report profits, as well as in loose oversight on the normal reporting process. Both of these were critical factors to the misreporting of company profits.
“Within Toshiba, there was a corporate culture in which one could not go against the wishes of superiors,” the Nikkei quoted from the findings.
Profit Targets Had to Be Met
Both Tanaka and Sasaki were Presidents during the time period studied by investigators, and they found that these executives “had set operating profit targets that the heads of divisions were required to meet, applying pressure by hinting at withdrawing from areas that underperformed” according to the Nikkei. With a clearly defective corporate culture, the report says “division presidents, line managers and employees below them continually carried out inappropriate accounting practices to meet targets in line with the wishes of their superiors.”
Most of the major structural changes in management at Toshiba will likely be announced at a special shareholders meeting scheduled for September.